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Call No. b & kccsion No. 2 

Author ^ E-~ 


1 his book shoul J be returned on or before the date last maFk^d below. 

> IUIUU1 fi/W' 

Title (\ilw*rh' 9 ^-p j\Wt • 



by IRA W. RUBEL, C.P.A. 

Ora Rubel & Company, Chicago 

A Printers' Ink Business Book 

Here is the first full-length book ever published on the 
financial management of the advertising agency : agency 
accounting, cost accounting, budgeting, and the details 
of a modern accounting system especially set up by 
Mr. Rubel to fit the advertising agency's financial struc- 
ture and needs. 

The scope of the hook is two- fold: 

Part 1 covers the history and nature of the adv'citismg agency 
business. It tells what different services agencies perform and 
how they are paid for performing these services. It covers 
such additional subjects as the basis of the agency’s compen- 
sation, credits and collections and budgeting. This part is 
written for the principals in advertising agencies and adver- 
tising managers who deal with advertising agencies. 

Part 2 gives detailed accounting methods to be used by 
agencies. This part although intended primarily for those inter- 
ested in the financial end of the agency, including the lawyer, 
the accountant and the treasurer, should be of interest also 
to every agency executive and every advertiser. 

The material in this book is based on the author's more 
than 20 years experience working with large and small 
advertising agencies. The methods and systems it de- 
scribes have been used efficiently in the more profitable 
operation of scores of agencies. 



Printers' Ink Business Bookshelf Publications 





By the Staff of Printers' Ink 


By Harold J. Rudolph 


By E. B. Weiss 


By Charles Hull Wolfe 

By I. W. Digges 



Partner , Ira Rubel if Company 


Joseph B. Bell 

Vice President and Assistant Treasurer, Ruthrauff if Ryan, Inc. 

published by 


in association ivith 




Copyright, 1948, by 

Manufactured in the United States of America 
by H. Wolff, New York 


Copyright Under the Articles of the Copyright Convention 
of the Pan American Republics and the United States 


{ WISH to express my gratitude to the following persons and 
organizations that have aided and advised me, some through 
the twenty-five years when I was devising and experimenting, 
and some during the months when this book was shaping itself: 

To Miss Florence Ficke of Periodical Publishers Association; 
Joseph Allentuck of the Biow Company; Joseph B. Bell and 
Ralph Van Buren of Ru^irauff & Ryan, Inc.; F. R. Feland, 
T. T. Brittan, William Fabry and Norman Fowles of Batten, 
Barton, Durstine and Osborn, Inc.; L. O. Lemon of J. Wal- 
ter Thompson Company; John L. Anderson of McCann- 
Erickson, Inc.; agency presidents Jack Lawler, Earle Ludgin 
and E. H. Weiss; Sidney Bernstein of Advertising Age; 
Howard Kroll of Dun & Bradstreet; Agricultural Publishers 
Association, American Association of Advertising Agencies, 
American Newspaper Publishers Association, Associated Busi- 
ness Papers, Periodical Publishers Association, Southern News- 
paper Publishers Association, the National Outdoor Advertis- 
ing Bureau and Industrial Surveys Company, Inc. And in 
particular do I wish to express my indebtedness to the staff 
of Printers 9 Ink , especially C. B. Larrabee, Joel Lewis, Her- 
bert L. Stephen and Kenilworth H. Mathus, whose many help- 
ful suggestions have done much to add to the value of this book. 

I wish also to express my indebtedness to Miss Jerry Jervis, 
my secretary, who so cheerfully carried the burden of transcrib- 
ing and arranging the material; to William T. Cline, who fur- 
nished the material on credit insurance; to Robert Humphrey, 
who edited and helped organize the manuscript; to my part- 
ner, Norman Fields, who for more than ten years has been a 



co-worker with me in the development of agency cost account- 
ing and general accounting systems (many of the basic meth- 
ods explained were developed by Mr. Fields, who, in addition, 
gathered much of the material used here); and to the staffs of 
Ira Rubel & Company and Rubel and Fields. 


Chicago , Illinois 


kJOME years ago Mr. Ira Rubel was invited to address a 
group at a round-table discussion held in conjunction with the 
annual meeting of the A.A.A.A. The subject of his talk, profit 
control of accounts, was acceptable to some; others held that 
budgeting or projecting costs and revenue by accounts could 
not be done successfully. I believe it would be safe to say that 
many of those who took the opposite view at that time revised 
their drinking during the ensuing years. 

While it is not possible to evolve a plan that might be adaptable 
to fit every case, due mainly to the variables peculiar to the 
business in which we are engaged, it is possible to establish a 
basis sufficiently flexible to serve as a pattern. This Mr. Rubel 
has done to a marked degree. 

It will become apparent to the reader that a great deal of time 
and study has been devoted to the solution of some of the im- 
portant problems which confront those responsible for financial 
management and accounting. 

Joseph B. Bell 

In This Book 




Financial Management and Operation 



The Beginnings of Advertising 6 

The Rise of the Agency 7 

T he Evolution of A dvertising 8 

The Open Contract 10 

The Development of the Modern Agency 14 

The space buyer 14 

The copywriter 1 5 

The art director 1 6 

Research 1 7 

Another measurenien t of growth 1 8 

Recapitulation 19 



General Outline of Functions 21 

Planning the Campaign 23 




Research by Agencies 26 

Research by Outside Organizations 27 

Product Analysis 28 

Market Analysis 28 

Dealer and Consumer Surveys 29 

Consumer Panels 29 

Who Pays the Bills 30 

Distribution and Sales 32 


Types of Media 34 

Procedure Followed 34 

The Contact Man 35 

Where To Get the Facts 36 

The media recommendation 37 


T he Space Buyer 40 

Space Representatives 41 

Contracts and Rates 41 

Standard Contracts 43 

Insertion Orders 47 


Newspapers 49 

Magazines and Trade Papers 51 

Radio 52 

Other Media 53 



Why Agency Should Specify Advertising Materials 54 
Production Orders 55 

Publicity 56 

Miscellaneous Functions 56 




Agency Should Not Act as a Banker 58 

Liability May Be Substantial 59 

Billing on a Space-Ordered Basis 60 

Billing on a Prebill Basis 61 

Billing Advertising Materials 62 


Three Types of Agencies 64 

Effect of Size of Account 65 

Services Rendered 66 

Agency Terms and Conditions 70 


Credit Angles 72 

Credit Guideposts 74 

Hoiu To Reduce Credit Risks 75 

Collections 76 

Securing Prompt Payment 77 

11 . BUDGETS 79 

General Considerations 79 

Forecasting Media Costs and Commissions 82 

Forecasting Direct-Salary Costs 84 

Forecasting Direct Expenses 89 

Forecasting Indirect Salaries and Expenses 90 

Gross Profit 93 

T he Master Budget 96 

Part II 

Accounting Procedures 



The Cost-Accounting Statements 108 

Time Records 109 



Schedule of Direct Salaries 114 

Schedule of Direct Expenses 1 14 

Allocation of Indirect Expenses 116 

What the Cost-Accounting Reports Mean 119 



Contracts 125 

Insertion Orders 129 

Checking Newspaper Space 132 

Billing the Advertising 135 

Payments to Publications 144 

Details of Billing Procedure 149 

Accounting and Bookkeeping Entries 151 



Contracts 156 

Insertion Orders 156 

Checking the Space 157 

Billing the Advertising 157 

Payments to Publications 158 



Contracts 160 

Billing Work Sheets 162 

Invoices to Clients 164 

Payments to Radio Stations 166 

Adjustments to Original Billing 168 

Accounts-Payable Detail * 7 ° 



Radio Production Order 17 2 

Radio Talent Voucher 1 73 

Accounting Department File of Radio Jobs 173 

Payment of Radio Talent Costs 1 74 


Invoices to Clients 175 

Payments to Radio Suppliers and Talent : Produc- 
tion Accounts Payable, Detail 177 

Description of Procedures That Should Be 
Adopted by Agencies with Substantial Billing 178 



Contracts 181 

Invoices to Clients 184 

Payments to Outdoor Plants 186 

Accounting Entries 186 



System Requisites 189 

Production Orders 191 

Purchase Orders 

Billing File— Paying File 198 

Bills from Suppliers 198 

Agency’ s Own Art Charges 199 

Expense Billing Authorizations 200 

Production Write-off Authorizations 202 

Job Transfers 201 

Accumulating Job Costs 206 

Inventory Control 208 

Recording the Costs 208 

Recording the Billing 210 

Voucher Register 2 1 o 

Preparing the Invoice for the Advertiser 213 

Detailed Billing 217 

Abbreviated Billing 218 

Summary 219 



Keeping Cost Records 222 

Allocation of Expense 223 



Preparing the Invoice 224 

Determining Profit and Loss 226 



General Operating Statement 234 

Balance Sheet 234 

General Ledger 234 

Chart of Accounts: Real Accounts 237 

Chart of Accounts : Nominal Accounts 238 

Required Records and Files 240 


General Considerations 266 

Functions Performed by Machines 267 

Procedure in Billing, Paying and Accounting for 
Newspaper Space 267 


I American Association of Advertising Agencies 277 

II The Associations and the Recognition Process 286 

III Credit Insurance 304 

IV Analyzing Dun hr Bradstreet Reports and Financial 

Statements 320 

V National Outdoor Advertising Bureau 328 



List of Illustrations 



Advertisement in Chicago Tribune, October 
23, 1870 




Advertisement in Chicago Tribune, Wednes- 
day, January 10, 1900 




Advertisement in the Saturday Evening Post, 


Fig- 4 

Page from Consumers' Panel Questionnaire; 
one of several forms used by Industrial Sur- 
veys Company, New York 

3 1 



Standard Conditions Governing Advertising 
Contracts and Orders 




Agency Terms and Conditions 




Billing Estimate 




Time Estimate 




Individual Client Operating Statement 




Semimonthly Time Report 



i i 

Schedule of Direct Salaries 

1 1 5 



Schedule of Direct Expenses 



Space Contract 




Insertion Order 




Insertion Order— Bookkeeping Copy 

1 33 



Newspaper Invoice— Space Ordered Basis 




Newspaper Credit Memo 




Newspaper— Detailed Invoice— Space Audited 




Bookkeeping Copy— Insertion Order 




Check Used for Paying Newspapers 




Voucher Check— Tabulating 




Fig. 22 Carbon of check 149 

Fig. 23 Sales and Cost Journal 154 

Fig. 24 Radio Billing Work Sheet 163 

Fig. 25 Invoice for Radio Time 165 

Fig. 26 Invoice for Radio Time— Bookkeeping Copy 166 

Fig. 27 Check Paying for Radio Time 168 

Fig. 28 Credit Memo— Radio Time 169 

Fig. 29 Production Order— Radio 172 

Fig. 30 Radio Talent Voucher 175 

Fig. 31 Invoice— Radio Talent 176 

Fig. 32 Poster Contract 182 

Fig. 33 Poster Contract— Bookkeeping Copy 183 

Fig. 34 Invoice— Outdoor 185 

Fig. 35 Production Order— Advertising Materials 192 

Fig. 36 Tardy Work Report 194 

Fig. 37 Purchase Order— Advertising Materials 196 

Fig. 38 Purchase Order— Art 197 

Fig- 39 Dummy Bill— Advertising Materials 199 

Fig. 40 Expense Billing Authorization 201 

Fig. 41 Write-off Authorization 203 

Fig. 42 Mechanical Transfer 205 

Fig. 43 Voucher Register 211 

Fig. 44 Detailed Billing 217 

Fig. 45 Abbreviated Billing 219 

Fig. 46 Art Time Record 224 

Fig. 47 General Operating Statement 230 

Fig. 48 Schedule of General and Administrative 

Expense 232 

Fig- 49 Schedule of Direct Salaries 233 

Fig. 50 Balance Sheet 235 

Fig. 51 Columnar Ledger Sheet 236 

Fig. 52 Sales and Cost Journal— Recap Sheet 246 

Fig. 53 Inventory Control Journal 250 

Fig. 54 Inventory Control Journal— Recap Sheet 251 

Fig. 55 Expense Voucher Register 257 

Fig. 56 Cash Receipts Journal 259 



Fig. 57 Standard Journal 260 

Fig. 58 Payroll Summary 262 

Fig. 59 Tabulating Card— Master from Contract 268 

Fig. 60 Tabulating Card— Bill and Pay Card 269 

Fig. 61 Invoice— Tabulating 271 

Fig. 62 Agricultural Publishers Ass’n— Application 291 

Fig. 63 Agricultural Publishers Ass’n— Financial 

Statement 297 


Part I 

Financial Management and Operation 

Preface to Part I 

OuRING the past twenty years, the writer has investigated 
the accounting and cost-accounting systems of many large and 
small advertising agencies. The obsolete records and the need 
for systematic methods are appallng. A few of the larger agencies 
have financial managers whose backgrounds enable them to 
accept and discharge the important responsibility of financial 
management. The smaller agencies must depend on the knowl- 
edge of the principal owners and the public accountants who 
serve them. 

This book is intended as a guide for agency executives and 
owners in the management of financial affairs. No attempt will 
be made to discuss the creation or development of advertising 
plans and campaigns. The work will be confined to problems 
concerning internal management, finances and accounting. 

Because the advertising agency business is a personal service 
business, each agency operates somewhat differently from any 
other. The methods of operation depend largely on the nature 
of the management, the key personnel and the agency's princi- 
pal clients. After all, an agency contributes a service to its clients 
which is intended to familiarize prospective purchasers with 
the merits of the clients’ products and to stimulate such pros- 
pects into actually making purchases. 

Of course, it is expected that when this service is delivered, 
the agency will be paid a sufficient sum to cover its costs and a 
reasonable profit. The owners of an advertising agency are in 
the business to make money. 

The commission system, which is almost a universal practice 
in the profession, places the agency in a different position from 



that of most other professions or personal service businesses. A 
firm of architects, attorneys or accountants accepts an assign- 
ment on a fee basis which is calculated to return the total cost 
plus a reasonable profit. These fees are related to the skill re- 
quired, the results accomplished and the time involved. In the 
advertising agency business, the agency receives a commission 
(generally fifteen percent of the selling price of advertising pur- 
chased for the client). Unfortunately, this commission is in pro- 
portion to the advertising purchased as contrasted with the fee 
received by the architect, engineer or accountant, which is based 
on the skill required, results accomplished and time involved. 
It will be readily understood that the advertiser whose expendi- 
tures are comparatively little sometimes requires as much ser- 
vice as, or more than, one whose expenditures are much greater. 
This at once presents an interesting and a difficult problem, 
which is of the nature of things that I shall attempt to explain 
in this book. 

Generally, the advertising agency executive is a person who 
has acquired one or more of the skills needed to conceive ad- 
vertising programs and direct their completion. The prior ex- 
perience of most agency executives often consists of contact 
work, copy preparation, art direction, etc. Too frequently such 
executives are unwilling to give sufficient consideration to the 
important phase of financial management because they feel that 
this is a function they do not fully understand, and one which 
may be delegated to clerks and office personnel. Nothing is 
further from the truth. 

The financial management of an advertising agency consists 
of analyzing each problem and arriving at a sensible conclusion 
based on facts. Every executive is constantly faced with the 
necessity of making decisions concerning financial affairs. A de- 
cision based on factual information is much more likely to be 
sound than one arrived at without the benefit of such facts. 
Factual information concerning financial matters is readily 

With that viewpoint, this book has been written to show: 



1. What facts and figures are needed in the management of 
the financial affairs of an advertising agency. 

2. How these facts and figures can best be secured. 

In Part I, we deal with what is needed and in doing so dis- 
cuss the history and functions of the agency business. In Part II, 
we discuss the detailed bookkeeping and accounting procedures 
to describe how the facts needed by management can be best 

1. Looking Backward 

Advertising is not modern in origin. It undoubtedly 
began at the earliest time when competition caused each man to 
make efforts to gain prominence— a process of human nature 
which has gone on ever since. Competition naturally arose at the 
earliest time of civilization when communities were brought 
together and each individual followed the urge to better him- 


Advertising, then, is nearly as old as civilization. There are 
records more than three thousand years old of announcements 
advertising for runaway slaves, written on papyri and exhumed 
from the ruins of Thebes. The Greek and Roman advertise- 
ments of gladiatorial exhibitions are reminiscent of the modern 
“billing** of circuses. There is linguistic proof of the existence of 
the town crier in early Hebrew civilization, and of hawkers of 
retail wares in Roman times. The excavations of Pompeii have 
revealed various “bills**— tablets attached to pillars— on the walls 
of that ancient city, and there are records in literature of signs 
over shops and stalls in Rome advertising crafts and merchan- 

As early as the late seventeenth century, advertising was 
already a source of profits for the first newspapers. From the first 
daily published in England in Queen Anne*s time until the 
nineteenth century, newspaper advertising was limited to an- 
nouncements identifying craftsmen, merchandise and services 
for sale. Even in the early nineteenth century, the newspaper 
was a local venture usually religious or political in nature. Few 
had large circulations. If a company wished to advertise, it dealt 


directly with the paper. There was no particular skill involved 
in newspaper advertising in the early stages. A simple announce- 
ment served both the advertiser and the public. 

After the phase of Great Expansion— industrial, geographical 
and modern mass production methods— production facilities 
were greatly in excess of natural demand. This brought about 
the necessity of the persuasive sales appeal— the need to create 
new markets and new customers. The businessman began to 
feel the need to persuade prospective customers. The business- 
man and the periodicals felt the need to cover wider geographic 
areas in a more persuasive manner. The problems and profits 
inherent in this situation were the foundations of the modern 
advertising agency. 


The first advertising agent was a middleman or jobber in ad- 
vertising space. He contracted space from publishers, which in 
turn he retailed to advertisers at a profit. 

In 1820 there were about 360 newspapers published in the 
United States. In 1830 there were over one thousand. In 1841 
there is the first definite record of the advertising agent, who, 
according to Rowell, was Volney B. Palmer. Palmer set himself 
up in Philadelphia as an agent for country newspapers, obtain- 
ing orders for advertising, forwarding the copy to the paper and 
collecting payment. 

Palmer was closely followed by others and before long there 
were a number of agents in the business. Only a few years passed 
before the jobbers changed their methods of operation. They 
soon began to act as space brokers. They made contracts for 
space on their own accounts and resold the space to advertisers. 
The early days of the agency business occupy a unique position 
in business history in that the affairs were conducted in confused 
state. The early agents were at once agents for the advertiser 

* There is little record of the early days of the advertising agency. The 
best that is available is to be found in Forty Years an Advertising Agent by 
George P. Rowell, who was one of the pioneers in the history of the agency. 



and for the publication, and space brokers on their own behalf, 
while some dealt also in printers’ materials; and, finally, a few 
published their own periodicals, selling advertising in these 
periodicals to the same newspaper for which they acted as agent 
and whose space they brokered. It was indeed a catch-as-catch- 
can business, with payments sometimes being made in “sup- 
plies” and with great “flexibility” of rates, etc. 

Yet since about Palmer’s time, for over a hundred years, the 
agency has been the nerve-center of the advertising business. 
But it is only today that the advertising agent has achieved the 
stature of a professional man. The last lap in the progress of 
the agency began about 1930. It was a fork in the road for the 
agency: Either fold-up or gear-up. Business couldn’t depend on 
old-fashioned methods to help push it out of the red. The 
agency had to devise new ways to serve. That agency which was 
able to gear-up to the new demands of the early ’30’s was the 
agency which was successful. It is that agency which represents 
what is typical in the new attitude of the agency business which 
has made a simple sales job into a complex professional service. 


In the nineteenth century a substantial part of advertising 
consisted of what would now be termed announcements and of 
items we now find in the classified advertising section of news- 
papers. In addition to these, however, the advertising agencies 
sold a quantity of space to the “patent medicine” business. Dur- 
ing the period around 1870, modern medicine was in its in- 
fancy. As a result there was a considerable field for the sale of 
all sorts of remedies. These accounts, which almost any agency 
would frown on today, were perhaps the backbone of the early 
agency business. 

Those were the days of rugged individualism, not of profes- 
sional ethics. It was the pioneering period. There was no social 
legislation and, looking backward, it appears that there was 
little conscience or application of a moral standard in most busi- 
ness. Thus it was natural that the advertising agency seldom 


investigated the merits of the product it advertised. Actually, it 
can scarcely be said that the agency was responsible for the ad- 
vertising that it sold and placed. In most cases, the advertiser 
and not the agency prepared the copy for the advertisement. All 
the agent did was to sell the space, forward the advertising copy 
and instructions to the publisher, and collect for the advertise- 

■t/tlKSBOttS TO 

0. T. Beldlng & Co. 




118 & 120 STATE-ST., 

Having jait opened & splendid assort- 
ment of the following good* of their 
own importation will make the lowest 
prices in the city, notwithstanding that 
they are rapidly advancing in value . 

Genuine Lyons Cloak Velvets. 

Blk. Silks, in best Lyons makes. 

Paisley Shawls, of elegant de- 

Hav4 also opened a magnificent line of 


In all the WEW 8HAPE8 
~~ ' CLOAKB._f ' 


' SHAY, 

Fig. i. Advertisement in Chicago Tribune, October 23, 1870. 

In addition to the classified and patent medicine advertising, 
the early agency placed what we today might consider legitimate 
advertising, including local notices and the advertising of farm 
implements and a few other products. Mail-order houses and 
manufacturers of farm products, books and machinery were 
some of the first industries to use advertising as a sales tool. The 
development of advertisements from 1870 to 1911 is indicated 
in Figures 1, 2 and 3. The 1870 advertisement is a far cry from 
thfc elaborately designed advertisement for the same store today; 
while the 1911 advertisement for the Buick Motor Company 



shows that the trend was beginning to change into what is used 
in present-day styles of advertising. 

The nature of the advertising agency business, as it was first 
constituted, was bound to cause trouble. Nearly all agencies 
were committed for large amounts of space in the publications 
which they represented. Consequently, it was profitable for 
them to urge their clients to use those particular papers. This, 
of course, was not economically sound. In addition, if the ad- 
vertiser wanted to use space in periodicals that the agency did 
not have direct representation for, it was necessary for the agent 
to try some makeshift negotiations for the space. Agencies were 
in constant competition with each other in an effort to secure 
the space that an advertiser wanted. At the best, the agencies' 
basis of operations was not conducive to creating confidence be- 
tween the advertiser and the agent since it was never clear to 
whom the agency was responsible. 

This confused state of affairs finally stimulated a clarification 
of the business, and toward the close of the nineteenth century 
the agencies began to give up the position of space jobber by 
instituting what was called the open contract. 


Under the open contract plan, the agency became the repre- 
sentative of the advertiser. The open contract provided that 
the advertiser have free access to all of the information available 
to the agency. The agency promised to buy the space needed by 
the advertiser at the lowest possible rates, and in return charge a 
commission for its services. The agency began to promise the 
advertiser unbiased recommendations concerning circulation, 
population, general reputation of the paper, etc. 

The open contract clearly was the beginning of the system 
existing today for remunerating advertising agencies through a 
commission paid by the publication. 

In 1891, George Batten opened an agency in New York City. 
From the very beginning, he adhered to the new principle of 


buying space for the advertiser at the lowest possible cost. To 
this cost he added fifteen percent for his services. 

In contrast to the questionable speculative profit that agen- 
cies had received when they jobbed space, this new basis pro- 
vided a reasonable profit margin. It placed the agency in a more 

Was a most disagreeable day, and thousands of people contracted a cold, as a conse- 
quence of which every retail druggist will have many a call for Laxative Bromo-Quinme. 
The people know that this prescription seldom fails to cure a cold in one day. Laxative 
Bromo-Oumme is the only distinctive cold remedy that is sold by every druggist in 
the United States and Canada. Your druggist has sold this prescription tor years and 
can tell you of its merits; ask him about it. 

Cook for this Signature on every box. 

NOTE* ■■J'Every Jobber in Chicago buys Laxative Bromo-Quinine in 50 and 100 gross 
lots and they all unite In the opinion that it is a cold remedy of real merit 

Tic*. 2. Advertisement in Chicago Tribune, Wednesday, January 10, 1900. 

secure position and enabled it to develop services for the adver- 

As agencies throughout the country began to adhere more 
and more to the open contract system, two important develop- 
ments occurred: 

1 . They had made their decision to work for the advertisers' 
interests exclusively. 



2. In addition to buying space for the advertiser at the lowest 
possible cost, they began to provide additional services 
and to be known as service organizations. 

It is during this period that we first hear of “copywriters.” 
Simultaneously with this development in the advertising agency 
business, publishers began to stabilize their rates so that those 
agencies which still acted as space brokers had difficulty in buy- 
ing space below the market. By about 1890, many newspapers 
had arranged to pay advertising agencies a commission of fifteen 
percent on the space placed. National magazines at that time 
were paying agencies a commission of ten percent. 

During the period from 1890 to about 1930 when agencies 
were making the transition from space brokers to service organi- 
zations, there were many agencies and advertisers who still were 
wedded to the old idea of buying space below the market. This 
brought about the vicious practice of price cutting, which the 
agencies accomplished by rebating a part of their commissions 
to the advertisers. 

In 1910, out of twenty-five reasonably large advertising agen- 
cies doing business with the Curtis Publishing Company, ten 
were suspected of rebating commissions. In 1920, six of these 
ten price-cutting agencies were still in business, but by 1930 
only one of them remained. 

During the period from 1890 to 1930, publishers began to see 
that the advertising agency was a valuable tool for legitimately 
creating advertising business. There was a real incentive for 
them to protect the agency from price cutting and unsound com- 
petition, for the publisher wanted the advertiser to get his 
money’s worth. Since the publishers were not in a position to 
conceive the advertising campaign, select the media, prepare 
the copy and visualize the art work, the advertising agency was 
the perfect answer to their problem. 

In 1893, t ^ ie American Newspaper Publishers’ Association 
adopted a resolution which provided that agencies' commissions 
be paid only to advertising agencies and that no similar price 


reduction be allowed to advertisers. The Curtis Publishing Com- 
pany in 1901 put into effect a new contract arrangement with 
advertising agencies. This new contract provided for a com- 
mission of ten percent to approved advertising agencies. To be 
approved the agencies agreed to charge advertisers the full card 

A Giant in Action 

J gr f§ jLWfp If there is one word that most fully 

expresses Buick efficiency, it is “UNITY”— 
H oil Buick parts being made at the one great 

H Buick plant — everything excepting lamps, carbu- 

aB yMfMr retors, coils and magnetos — no essential parts being 
entrusted to other makers 

This “one-ness” of construction insures that unison of opera- 
tion which toda\ makes the Buick such a favorite wherever the 
utmost in automobile service is demanded 

Ever\ Buick Car develops horse power far in excess of its rating. 
The roughest going presents no difficulties to the Buick, for the Buick 
Motor is a veritable giant in aetion, full) sustained by the utmost stability 
of every part — transmission, frame, bod), sttering gear, axles, shaft, 
differential, brakes, springs, wheels — everything down to bolts, nuts and 
cap screws. All this enables the Buick to take “low gear” hills on high 
gear speed, “picking up” at every >ard without the shift of a lever. 

In addition to all this, the Buick Motor has been so refined that all Buick models for 
I '>12 stand in the front rank with the most silent-running cars As every car-wise man is 
familiar with the uncqualcd rating record of the is not necessary to mention speed. 

Five, priced occordinf to powee and RSv 

..r.-$8S0 *1000 *1075, *1250, *1800 On. 1 . 

ton Buick Truck. *1000 C.l.lo*u. .huw.n ( th. 

Buick Motor Company 

Flint, Michigan 

Fic. 3. Advertisement in the Saturday Evening Post, 1911. 



rate, less only the cash discount for prompt payment. The agree- 
ment provided that in the event an agency quoted space in the 
Curtis publications for less than the published rate, such a quo- 
tation would be considered a violation of the contract. The 
contract provided that upon a second violation, the agent would 
be dropped from the approved list of advertising agencies. 

Gradually, all publishers and other media fell in line with 
the commission system which stabilized advertising rates and 
the income of the advertising agencies. Magazine publishers in- 
creased the commission basis first from ten to thirteen percent. 
In 1918, the American Association of Advertising Agencies 
sought to increase the commission basis of magazines from 
thirteen to fifteen percent, with an additional two percent cash 
discount for prompt payment. Today, the fifteen percent agency 
commission is standard with only inconsequential exceptions. 

On various occasions from 1890 to the present time, publish- 
ers and advertisers have questioned both the commission system 
itself and the rate of commission paid; but since 1925, it has been 
more or less standard practice for the advertising agencies to 
receive a fifteen percent commission allowed by the publishers 
and other advertising media.* 

The space buyer 

The first service performed by the twentieth-century adver- 
tising agency was that of selecting the publications for the ad- 
vertiser. Before the days of the open contract, there was consid- 
erable doubt whether this job was done to the best advantage 
of the advertiser; but certainly after the introduction of the open 
contract basis, it proved to be a valuable service to advertisers. 
The selection of advertising media, still a difficult job, was much 
more difficult around 1900. Before relatively recent times, there 
was not the information available concerning circulation, type 
of readers and geographical distribution which is published 

• For an exception see Part II, Chapter 6. 


In addition to the difficulty in selecting media, the early ad- 
vertising agencies were faced with the question of the “best buy. M 
Today, rates for advertising space are standardized and pub- 
lished. With the exception of a few small weekly papers and 
highly specialized publications, such as yearbooks and religious 
papers, the advertiser must pay the quoted price. There is no 
bargaining. The prices of printed advertising media today are 
based chiefly on the circulation of the media, so that in deter- 
mining the best buy, the agency is mainly concerned with the 
type of readers as it relates to the advertisers' products. Even as 
late as the igao’s the space buyer was a key man in nearly every 
advertising agency. If he was a sharp buyer he secured some 
space at bargain prices. He studied markets and types of circu- 
lation. He had an intimate acquaintance with many of the pub- 
lications and he could point out the advantages and disadvan- 
tages of most of them. Space buying, then, was a legitimate and 
important element of service in the early advertising agency, 
and still is, for proper selection can save substantial sums for 
the advertiser. 

The copywriter 

Long before 1900, advertising agencies began to feel the need 
for the proper preparation and wording of advertisements. So 
long as advertising was confined to local announcements and 
classified ads, there was little importance attached to the prepa- 
ration of advertising copy. It was not long before the agencies 
began to find that the advertising message could be something 
more than an announcement. Agencies recognized the impor- 
tance of selling copy. About 1880, a few agencies announced 
that they would prepare advertisements for their clients. The 
preparation of copy began merely as an added service. 

Not much importance was placed on it at the start. But with 
the rapid expansion of industry, manufacturers began to feel 
the need for wider distribution of their products, and advertis- 
ing became an important tool for such added distribution. Ad- 



vertising agencies quickly expanded and found themselves serv- 
ing all sorts of businesses. Advertising copy took on great im- 
portance and the work of the copywriter soon began to vie 
with that of the space buyer in the importance of the services 
rendered by the agency to its clients. As an example of this, as 
early as 1905, Albert D. Lasker of Lord & Thomas employed 
John E. Kennedy as a copywriter, paying him $28,000 a year, 
and publicized this fact. 

The art director 

^Art work played some part in ancient as well as in early mod- 
ern advertising. The Roman signs we have mentioned often 
contained pictures} 4 The tavern, for example, was represented 
by a suspended shield, ^ndeed, the rate of literacy was then so 
low that the picture communicated more readily than the wouD 
Care in lay-out, too, appeared in the earliest modern adver- 
tisements. One published in 1878 advertises compound oxygen 
as a new treatment for the cure of chronic diseases by the true 
process of revitalization. In this advertisement, Drs. Starkee 
and Palen claim that this treatment cures consumption, asthma, 
catarrh, bronchitis, dyspepsia, headache, rheumatism, neural- 
gia, etc. There was no picture in the advertisement of this elixir, 
but it did contain bold headlines and subheads. 

In 1888, in an advertisement published by Ferris Bros., a num- 
ber of drawings appear illustrating the use of corded corset 
waists. It was common in these early days of advertising to pub- 
lish a picture of the founder of or some important personality 
in the business. An examination of these early lay-outs causes 
one to doubt whether the illustrations could really be called art 
work. However, the Uneeda Biscuit advertisement, published by 
the National Biscuit Company in 1899, clearly illustrates the 
function of planned art work in a printed advertising message. 

t As the use of art work became more extensive in advertising, 
gencies developed certain methods and techniques to coordi- 
nate art work and advertising copy. Many advertising agencies 
in the early 1 goo’s set up art departments or at least employed 


one or more persons whose job was to secure or produce the 
needed art work for the advertisements placed by the agency. 

It was soon determined that no one agency could contain 
among its personnel a sufficient number of artists to produce 
the varied types of art work required in the advertisements pro- 
duced for the different clients of the agency. For that reason, it 
has become more or less general practice for the agency itself to 
make the lay-out for the advertisement and perhaps to produce 
a very rough sketch of the art work required. After this has been 
done, the art director of the agency selects the artist who he feels 
can do the best job in producing the type of art work required. 
The art work is then purchased on the outside. 

In certain specialized types of advertising agencies, it was 
necessary to expand the art service rendered; for this reason, 
some agencies actually employed artists to prepare the finished 
drawing or painting. Because it became a generally accepted 
fact that the illustration in an advertisement may be equally as 
important as the printed message, the art department of an ad- 
vertising agency has become one of the important parts of the 


In the very early days of the advertising agency, perhaps even 
before 1880, some agencies realized the importance of research. 
In the days before the open contract, when agencies were most 
interested in selling the space in the papers they represented, it 
became important to convince an advertiser that certain adver- 
tising media had greater value than others. For this reason, it 
was necessary to determine such things as circulation figures 
and the type of persons who read particular publications. 

In an effort to sell the space they had available, some of the 
agencies actually studied these things so as to convince the ad- 
vertiser that he should place his advertisements in certain 
media. With the advent of modern types of outdoor advertising 
and car card advertising, it became necessary to determine the 
value of these new advertising media. This required statistics, 



which in turn required research. Consequently, many studies 
were made by newspapers, magazines and outdoor plants. While 
some research work was attempted by agencies before this cen- 
tury, it is doubtful if much really extensive research work, such 
as market analysis as we understand it today, was performed by 
agencies until about 1930. 

By that time advertising had become recognized as a power- 
ful and essential tool to modern business. Nearly every large 
manufacturer realized the need of distributing his products over 
a wide area. Millions of dollars were being spent to acquaint 
the public with the products available and the relative merits 
of each. The Federal Food, Drug and Cosmetic Act had done 
much to clean up the fantastic claims made by manufacturers 
of patent medicines. 

As the science of marketing and merchandising developed, 
many questions presented themselves to advertisers, such as: 
What size package will sell best? Will the consumer prefer a 
liquid or a powder? What type of retail outlet can best dis- 
tribute a certain product? Should a manufacturer push a low- 
priced, middle-priced or high-priced product? What is the best 
geographical area for the distribution of certain products? 

Many advertisers came to their agents for the answers to these 
questions. It was logical, then, that the advertising agency began 
to feel the need to conduct studies in an effort to find the answers 
to the questions posed by the advertisers. Some agencies em- 
ployed one or more persons to spend their full time conduct- 
ing research studies for their clients. Others believed that they 
should consider their clients’ problems and secure specialists on 
the outside to study the questions and resolve the answers. The 
quantity and quality of research work has varied, and still varies, 
between one agency and another. A fuller discussion of the 
problems of research will be found in a later chapter. 

Another measurement of growth 

It is not practicable to discuss the history of each of the other 
departments of an agency at this point. One additional subject 


however is interesting and indicative of the quick growth of 
the agency. How has the volume of the advertising agency busi- 
ness grown? Unfortunately, there is no reliable source from 
which to secure accurate figures to indicate the volume of ad- 
vertising in the early years of the business. There are statistics 
which tend to indicate that the largest of the very early agencies 
prior to 1875 conducted a volume of business of from $5,000 
to approximately $100,000 a year. By 1890 some of these agen- 
cies were doing a volume of nearly $1,000,000 a year and by 1900 
a few were doing as much as double this. After the first World 
War the largest were doing a volume of about $10,000,000 a 
year. Today, there are two or three agencies that transact a 
business having an annual volume in excess of $50,000,000. 
lake any personal service business, most of the agencies deliver 
such a highly personalized service that their size is restricted. 
Out of about two thousand agencies today, approximately fifteen 
hundred handle a yearly volume of less than $500,000 each. 


We have found that although advertising is as old as civiliza- 
tion, the advertising agency is a product of modern times. It 
has gone through four stages: 

1. Infancy: Before 1900, there were few in the business who 
even knew how they wanted to conduct the business, or whether 
they represented the advertiser or the publisher. Late in the 
nineteenth century, most agencies were space brokers, who 
bought space at wholesale and sold it at retail. 

2. Adolescence: From 1900 to 1918 agencies were developing 
their organizations to become a positive force in business. A 
standard commission from publications was received by all 
recognized agencies, and the development of service depart- 
ments was beginning. The techniques of media selection, copy- 
writing and art work were being refined. 

5. Early maturity: There was still considerable mystery in the 
business before 1930; thereafter the business settled down. Most 
of the functions to be performed by the advertising agency had 



been determined and competition between one agency and 
another was purely on the basis of who could best serve the 
client. The agency in its mature form has become, in some as- 
pects, a profession. 

4. Professional concept: The professional elements of the 
agency business are those related to the personal service offered 
to clients by the agency in connection with idea development, 
product analysis, the development of marketing techniques, the 
personal attention to writing, lay-out, art work, etc. In addition, 
there are the commercial elements of the business, those related 
to the purchase of advertising space and materials, the use of 
capital and routine functions such as checking copy, measuring 
ads, buying printing, billing, paying and accounting. 


2. Fonctions of the Agency and 
Planning the Campaign 


JLHE advertising agency business, having passed the period of 
adolescence, is now mature and in certain aspects it is achiev- 
ing a professional level. In the earlier stages of agency develop- 
ment, the functions performed and the services rendered varied 
widely between one agency and another. Now, most agencies 
offer many of the same types of service. 

The modern agency, of course, still buys and sells advertising 
media as did the early agencies, but in addition it offers profes- 
sional services in planning, developing and executing advertis- 
ing campaigns. 


The following outline of some of the principal functions of 
the modern agency indicates both the maturity of the business 
and its claim to professional status. 


It plans the actual advertising campaigns, and outlines many 
related activities to be carried on both within the agency and 
in the company whose product or service it is advertsing, care- 
fully integrating both. 


It studies the product and the need for the product, and then 
determines selling points and makes the appeal. 


It endeavors to determine in advance, in so far as possible, 
how well comparative appeals will pull. 




It selects various advertising media and analyzes media ac- 
cording to coverage, costs and effectiveness. It orders, specifies 
and buys the advertising space or time planned for the cam- 
paign. It checks advertising as it appears, then audits quantity 
and quality and handles claims for shortages and substandard 


It conducts research regarding markets, copy, products, ap- 
peals, uses, etc. 


It may have an entire department devoted to radio advertis- 
ing, including programs and research. 


It specifies and purchases the production materials lequired 
for the campaign. 


It occasionally conducts or directs publicity campaigns in be- 
half of its client. 


It may plan dealer helps, including displays. 


It prepares sales portfolios and manuals. 

1 1 . DESIGN 

It prepares packages and labels. 


It plans retail promotion, including sales helps for retail 
clerks, local advertising tie-ins, etc. 




It performs numerous services of a miscellaneous nature re- 
lated to the following: 

Sales and consumer films. 

Direct mail. 


Sales training. 



Instruction and recipe books. 

Catalog planning. 

House organ planning. 

Planning sales policies. 

Product design. 

Sales meetings. 

New product development. 

Public relations. 

Distribution channels. 

Annual reports. 

Working with salesmen in the field. 


It bills advertising space and materials, and radio time, talent 
and mechanics, and furnishes the advertiser with statistics in 
relation to these. 

In order to understand each of these functions, it is necessary 
to go into some detail to define what the usual practice and 
procedures are. 


This is one of the creative services performed by advertising 
agencies. It includes such activities as: 


Selecting the products to be advertised. 




Determining where the advertising should appear. 


Deciding what general class of media should be used. 

4. COPY 

Conceiving and developing the “copy idea/' 


Visualizing the advertising. 


Cooperating with the manufacturer’s advertising department 
on such matters as follow-through, dealer helps and the like. 

It is not the purpose of this book to describe how an adver- 
tising campaign is conceived and developed. These services, 
which are acknowledged to be highly important in the agency 
business, are not directly connected with the subject of financial 
management except as the cost of performing these services af- 
fects finances. Usually owners of smaller agencies, and contact 
men in larger agencies, perform the important functions in- 
cluded in conceiving and developing the advertising campaign. 
In the larger agency, certain separate elements of work are dele- 
gated to departments or individuals within the agency. These 
would embrace copywriting and art work, including visualiza- 

It is customary for the contact men in the larger agency or 
the owner in the smaller agency to develop the advertising cam- 
paign and discuss it rather extensively with the advertiser. Much 
of this work is called “client contact/’ and the contact man in an 
agency for this reason is an important factor in the success or 
failure of an advertising campaign. The contact man, therefore, 
has a great effect on the cost of performing all of the work for 
advertisers. If the contact man understands his job and issues 


careful instructions and orders to agency employees based on 
the actual needs of the advertiser, considerable waste will be 
eliminated. It is also important that a contact man have the 
courage of his convictions so that if a piece of work is com- 
pleted satisfactorily he will avoid continual changes which 
are unnecessary and costly. 

Many books have been written on the subject of copywriting 
and others on the subject of advertising art. As stated previously, 
it is not the purpose of this volume to discuss the creative ele- 
ments of the agency business. 


H. Research 


J.HE research activities of the agency are currently the sub- 
ject of much controversy and questioning. The main stream 
of belief is that where large sums of money are expended for 
advertising it pays handsome dividends to know as much about 
the product, the market and competition as it is possible to 
learn. This indicates rather extensive research activities. The 
question is whether the agency or the advertiser should initiate 
the research and, if the agency does, whether it should receive 
a special fee. 

Few agencies are equipped to conduct extensive research 
operations, consequently there is considerable merit to the posi- 
tion that outside specialists should conduct them. However, at 
the outset it is necessary for the agency to know a good deal 
about the product it is going to advertise and the market in 
which the product is to be advertised. The implication is that in 
any event the agency must perform a certain amount of research. 

When an agency first secures an account, it is standard prac- 
tice to study the products to be advertised, the market for the 
products, and the competition, including advertising campaigns 
conducted in connection with the distribution and sale of com- 
peting products. Upon receiving a new account, the agency will 
often find that it has employees who have had experience with 
products similar to that of their new client. If not, provided 
that the size of the account warrants it, the agency often em- 
ploys a person or persons with previous experience in advertis- 
ing similar products. 


It is difficult to generalize on the subject of research activi- 
ties that are conducted as a preliminary to advertising, because 


the type and extent of research activities are largely dependent 
on the particular product to be advertised. Market and product 
analyses are specialties which would require a substantial num- 
ber of highly trained and experienced persons in order to answer 
the questions that arise from time to time concerning the varied 
products with which an average agency is involved. The re- 
search activities generally conducted by an agency at its own 
expense are confined to a superficial analysis of: 

1. The product to be advertised. 

2. The market for the product. 

3. The competition with other products. 


Often an agency recommends market analyses and other re- 
search activities. In such cases, the agency may suggest the re- 
search organization that is best equipped to make the studies. 
In all cases, the agency certainly should be furnished with a copy 
of any market studies or product analyses that are available. 
The U. S. Department of Commerce publishes numerous ana- 
lytical reports that furnish considerable revealing information 
on products and markets. These statistics are available to the 
public and they are generally used by advertising agencies in 
planning advertising campaigns. In addition, the various ad- 
vertising media have made intensive market studies which are 
made available to advertising agencies. These reports are con- 
stantly referred to by agencies in their study and preparation for 
advertising campaigns. 

Certain organizations have specialized in rating the effective- 
ness of advertising messages. Advertising agencies frequently 
contract for the services of these organizations to determine 
the effectiveness of their campaigns and of the campaigns con- 
ducted by other agencies for clients in competition with theirs. 

Research work as it affects advertising and regardless of who 
does it may be broadly divided into two classifications: product 
analysis and market analysis. 




Product analysis can involve many different subjects. Among 
these the most significant are: 

1. Investigation of the company, including its capacity for 
production and for growth, and its sales set-up. 

2. Engineering analysis to determine the quality of the prod- 
uct and its merit in relation to competing products. 

3. Study to determine the kind of product needed in rela- 
tion to its usefulness and some existing or potential need. 
This must be generally correlated to engineering analysis 
and market analysis. 

4. Research to determine price and production scale. This 
too should be correlated with market analysis. 

5. Analysis to determine methods of packaging, selling and 

Generally, the product analyses are undertaken by advertisers 
rather than by advertising agencies. Of course, this type of re- 
search can have an important bearing on the effectiveness of the 
advertising campaign. Consequently the agency is always inter- 
ested in these analyses and should always be consulted about 
them. Often the agency itself suggests a product analysis. 

This type of research is usually paid for by the advertiser. If 
the study is initiated by the agency, then the agency arranges 
for a fee on a cost plus basis or on a flat fee basis. Rarely does 
the agency undertake a product analysis without securing a 
special fee for the work. 


Market analysis may be undertaken to determine: 

1. Size of the market or quantity of goods that the market 
can be expected to absorb. 

2. Geographic location of the market. 

3. Type of individual or company that is the logical prospec- 
tive buyer of the product. 



4. Seasonable factors which affect the sale of the goods. 

5. Price level at which the product can be sold most effec- 
tively to produce a profitable result. 

6. Most efficient methods of distribution. 

Market analyses, like product analyses, vary considerably. 
Some analyses can be made through questionnaires sent to deal- 
ers or distributors to determine the best policies for the market- 
ing of a product. Often the agencies themselves undertake this 
kind of study. In such cases, it is usual for the agency to charge 
a fee for conducting the study. 


Occasionally an agency undertakes to make a dealer survey 
at its own expense but this is the exception rather than the rule. 

Consumer surveys are usually more costly than dealer surveys 
because to conduct a study among customers it is necessary to 
reach a large number of people. Consumer surveys are made in 
four principal ways: 

1. Personal interviews. 

2. Questionnaires mailed or otherwise distributed. 

3. Telephone interviews. 

4. Consumer panels. 

Before making a consumer survey, it is necessary to determine 
what information is needed and how it can be used. When this 
has been established, if the survey is to be made by method “1,” 
“2,” or “3," a questionnaire is generally prepared so that simple 
yes or no answers can be secured to a question or series of ques- 
tions. The answers to the questions are secured and the results 
are tabulated. After interpreting these results, the advertiser or 
agency draws conclusions upon which future policies are based. 


This fourth type of consumer research is an intricate proce- 
dure which may operate after the following pattern: 



1. A number of typical consumers are selected in the geo- 
graphical areas from which information is required. 

2. These persons are furnished with daily, weekly or monthly 
questionnaires which when answered will indicate: 

a. Each of the items that the consumer purchased dur- 
ing a period of time. 

b. Who in the family made the purchase. 

c. What influenced the purchase. 

The questionnaires used are often lengthy and sometimes 
require detailed answers to one hundred or more questions. 
Through a tabulation of the answers, the research organization 
can determine just what each person or family has purchased 
during the entire period covered. Several research companies 
operate research panels and at least one large advertising agency 
operates a panel. The tabulations made as a result of the ques- 
tionnaires furnish statistics on many different articles and in 
many different geographic and economic areas. This has a much 
broader use than the tabulations made from a survey which is 
conducted for one specific purpose. A sample questionnaire 
used by a research company in conducting a consumer panel is 
shown as Figure 4. 

Since the consumer study is far more costly than the distribu- 
tor or dealer study, it is rare for an agency to undertake a 
consumer research study at its own cost. Often consumer re- 
search is conducted by the advertiser himself or through a re- 
search organization employed by the advertiser. As consumer 
research studies can have an important bearing on the advertis- 
ing campaign, agencies prefer to have at least a part in super- 
vising the studies. 


If any generalization can be made as to whether the agency 
or the advertiser pays the cost of research activities, it is this: 
Where the study is performed specifically in connection with the 
development of an advertising campaign, the cost is paid by the 

3 ° 


Fit,. 4. Page from Consumers’ Panel Questionnaire; one of several forms used 
by Industrial Surveys Company, New York. 

agency. Where the study is made for the general benefit of 
the advertiser, the cost is paid by the advertiser. 

It is impossible to make satisfactory generalizations as to what 
research activities the advertiser should expect to receive from 
the agency. The advertising agency should not be expected to 
conduct market analyses and product research; rather, it should 
avail itself of existing information that will assist it in the prepa- 
ration of the advertising campaign. 

The agency executives, in addition, should help determine 
what additional facts are needed to develop the most effective 
advertising campaign. They should recommend that the adver- 
tiser secure that information by employing outside specialists 
to make the studies required, and should point out that where 
the agency directs the research activities, it is necessary for the 
agency to charge a special fee to cover the cost of such direction. 



Certainly research studies, including product and market 
analyses, can be extremely important factors in the development 
of an advertising campaign. Such research activities are not an 
integral part of an advertising campaign any more than product 
engineering (which has an important bearing on salts) is a 
direct or integral part of an advertising campaign. For this rea- 
son, the agency can be expected only to express its opinion 
concerning the need for research; this in contrast to the job of 
actually performing the study. 


Since an advertising message is generally intended to reach 
the ultimate purchaser of a product, it is wasteful to advertise to 
persons who are not prospective customers; that is, to persons 
who cannot conveniently purchase the advertised article. A 
businessman would not advertise coal in an area which he 
did not serve; rather, he would concentrate his advertising in the 
area in which he distributed his product. 

The manner of distribution or type of retail outlet also be- 
comes an important element to be considered in connection 
with the development of an advertising campaign. Often the 
manufacturer has a choice of the type of outlet through which 
he can distribute his product. For example, some manufacturers 
of phonograph records distribute records through jobbers, each 
jobber having the exclusive rights in a specific geographical 
area. Other manufacturers of phonograph records distribute 
their products directly to the retail stores. 

The advertising agency should be in a position to advise the 
advertiser concerning the various available methods of distri- 
bution. One method of distribution may provide a much greater 
rate of gross profit than another. Obviously, where the profit 
margin is larger, there are more funds available for advertising. 
On the other hand, it can be assumed that a method of distri- 
bution which provides a smaller profit rate presupposes the need 
for less sales expense and probably smaller advertising appro- 
priations. The advertising agency can be expected to be of 


valuable assistance in determining the most efficient method of 
distribution, but it cannot be expected to be of actual assistance 
in distributing the goods. This is a job for the advertiser and 
his salesmen. 

In any event, the method of distribution must be determined 
before the advertising campaign can be successfully planned. 
The agency should be taken into the advertiser's confidence and 
should be fully informed of the distribution methods used by 
the advertiser and of any contemplated changes in the methods. 
The agency should be informed of the current sales rate in each 
territory and through each type of distributor, dealer or jobber. 
Such facts are helpful to the agency and will indicate where 
the advertising is successful and where it is not. 


4. Media Selection 

It IS pointed out in Chapter 1 how the early advertising agen- 
cies performed the single function of buying advertising space 
and selling it to the advertiser. This phase of the agency busi- 
ness has continued to be one of its important functions, and 
this chapter, therefore^deals with the problems and methods of 
selecting advertising media. This is a complex process which 
calls for wide knowledge and acute judgment.*) 


The types of media from which selection must be made ac- 
cording to their appropriateness for advertising a particular 
product are: 

1. Daily newspapers; Sunday newspapers; weekly newspa- 
pers; farm papers; national magazines; trade papers and 
magazines; and various specialized or restricted publica- 

2. Radio and television, including sponsored programs or 
spot announcements, either local or network. 

3. Outdoor advertising, including posted outdoor displays, 
painted outdoor display signs and spectaculars, and car 
cards as they appear in streetcars, busses, subways, elevated 
trains and other forms of commuter transportation. 

4. Direct-mail materials, dealer displays, catalogs, etc. 

5. Special advertising, including commercial moving picture 
productions, sky-writing, sales-convention materials, etc. 


The agency executive in meetings with the advertiser devel- 
ops a general plan for the campaign. When the plan has devel- 



oped to a point that will permit a determination of the kinds of 
advertising media to be used, it is necessary to determine which 
publications, which radio stations and what outdoor locations 
or car cards are to be used3 

The space buyer in an advertising agency and the space- 
buying department until recent years specialized in analyzing, 
selecting and buying printed media, i.e., newspaper and maga- 
zine space. With the advent and popularity of radio advertising, 
it became necessary for the agencies to provide a means of ana- 
lyzing the effectiveness of the various radio networks and inde- 
pendent stations in order to determine which stations and chains 
were best suited for each advertising problem. Today the selec- 
tion of printed media is quite separate and apart from the selec- 
tion of radio advertising media. 

The selection of outdoor advertising space is a relatively 
simple matter; consequently an established media department 
is usually assigned the task of selecting this medium. The Na- 
tional Outdoor Advertising Bureau compiles statistics relative 
to the effectiveness of various outdoor advertising locations. 
In addition, each outdoor advertising plant has many available 
statistics showing the effectiveness of each of its various loca- 

^Vhen the agency and the client have tentatively determined 
the types of media to be used and the approximate advertising 
budget for each type, the problem of actual selection of the 
specific media is at hand. \ 


Usually, the contact man or account executive * has a gen- 
eral idea of the type of coverage that would serve the advertiser 
best. He may suggest, for example, that morning newspapers 
be used in preference to evening papers, or that Sunday edi- 
tions be used exclusively. He may suggest that the product be 
advertised only in cities having a population in excess of a 

# The terms “contact man*' and “account executive” are synonymous. 
Hereafter this text will use “contact man.” 



certain minimum; or, conversely, that the product be adver- 
tised only in small weekly papers.^ 

If the problem concerns magazine choice, he may recommend 
those magazines appealing to the quality buyer; or, conversely, 
those appealing to the larger group of popular-price brand 
buyers. The contact man may have a well-defined opinion con- 
cerning the type of radio network or independent station that 
should be used, or he may suggest at what time of day the pro- 
gram would be most effective. 

(In any case, the contact man, with or without the media-selec- 
tion department, will develop a general idea of the time or 
space to be used. The media-selection department will then 
analyze the available publications, radio stations, outdoor lo- 
cations, etc.\This analysis will consist of a detailed study of 
population, ^circulation, type of circulation, comparative costs 
of equal quantities of space and comparative' costs of getting the 
advertising message before each reader or listener. 

For example, one radio station may charge one hundred dol- 
lars for a two-minute announcement, another may charge only 
fifty dollars. However, the importance is not only in the length 
of time the message is on the air; it includes also the number of 
people who will hear the message. But the question is further 
complicated: It is also necessary to determine how many actual 
prospects may listen to the message. If an advertiser is selling 
dog food, it is important to know how many listeners own dogs 
and therefore would be prospective purchasers of dog food. 

A similar type of analysis is necessary in connection with print- 
ed advertising appearing in magazines, newspapers, yearbooks, 
theater programs, classified telephone directories, etc.(it is nec- 
essary for the media-selection department to determine the cost 
per unit of space, the comparative cost of reaching each reader, 
and the comparative cost of reaching each prospective buyeiC 


^ Nearly every newspaper, magazine, radio station and outdoor 
plant has compiled statistics from which the media-selection 


department can secure many facts to assist in the selection of the 
proper media for each campaign. Jin addition, there are other 
sources for obtaining statistical information, such as Standard 
Rate & Data , a service of directories which lists each advertis- 
ing medium with its advertising rates, circulation, population 
and like data. Ayer's Directory of Newspapers and Periodicals, 
published annually, furnishes considerable information on 
nearly every publication in the United States. This book, along 
with Standard Rate & Data , will be found in every agency's 
media department. 

The media recommendation 

7 Upon completing the study to determine where the adver- 
tiser's product can be advertised most effectively, a media recom- 
mendation is prepared which consists of the following: 

1. List of various advertising media to be used. 

2. Dates and quantities of space to be used on each date. 

3. Total quantity of space to be used during the advertising 

4. Cost of each advertisement. 

5. Total cost of the advertising in each medium.^ 

^ The media recommendation is discussed in detail with the 
contact man, who may suggest revisions! When the recommenda- 
tion is in its final form, the contact man presents it to the adver- 
tiser and discusses the merits of the recommendation in whatever 
detail is pertinent. It should be noted that the entire advertising 
appropriation cannot be spent for advertising space, since a 
substantial sum must be reserved for the cost of the various ad- 
vertising materials required to produce the advertising. This 
refers mainly to printed advertising in newspapers and maga- 
zines. Here art work in the form of lay-outs and finished art, 
engravings, typesetting, electros, mats, photostats, etc., are re- 
quired./ln an advertising campaign running in newspapers or 
magazines, from eight to fifteen percent of the total advertising 
budget may be spent for advertising materials.! 



The selection of radio advertising presents problems different 
from those connected with printed advertising. In radio adver- 
tising, it is necessary not only to select the network station and 
the time of day for the advertising, but it is also imperative that 
the type of show or announcement fit the product. Obviously, 
the soap operas which are currently popular would not be in 
keeping for an advertisement of Cadillac cars or Steinway 
pianos. Conversely, a symphony orchestra program would not 
be suitable for advertising, say, bubble gum. In radio advertis- 
ing, the selection of one station over another, or one network 
over another is often not so important as the selection of the 
program or type of program. 

The spot announcement or chain break is a form of adver- 
tisement that has paid nice dividends. This presents an addi- 
tional problem for the agency. It is necessary to determine if 
the program is to take the form of spot announcements and 
chain breaks or if it is to be a sponsored program. After this 
determination has been made, if the decision is for the spot 
announcement or chain break, the procedure follows a pattern 
similar to that of printed advertising. A radio media recom- 
mendation would contain a list of the stations to be used, the 
hours during each date on which the program would be broad- 
cast, the cost of each broadcast, and the total cost of advertising 
on each station. 

When the sponsored program is decided upon, the agency 
encounters a more difficult job. Here \t is necessary to determine 
first what type of program is to be used; second, what kind of 
talent is available; and third, what radio time is available on 
each station or network^ Sometimes the agency can buy a “pack- 
age show/' which means that one lump sum is paid for the 
talent and the radio time. In other cases, the agency secures the 
talent, which is paid for separately from the radio time. 

The sponsored-program form of radio advertising usually 
involves substantial expenditures. Generally, not only the me- 
dia-selection department, but also the executives of the agency 
will give serious consideration to all of the elements involved in 



selecting a sponsored program for an advertiser, fn presenting 
its recommendation to the advertiser, the agency will submit 
statistics showing the approximate audience for each program 
suggested. fThere are various independent organizations which 
rate radio shows and indicate the approximate number of lis- 
teners. The services of these organizations are often purchased 
by agencies in an effort to determine the effectiveness and cir- 
culation of the program. 

(^ledia selection, whether it is in connection with printed 
advertising, radio advertising or outdoor advertising, is an estab- 
lished service of the advertising agency. The function of media 
selection never ceases; and even though an adverstising cam- 
paign has been completely decided upon, the agency contin- 
ually reviews the various media being used by a client in order 
to determine the comparative effectiveness of the advertising. 
This is a service which the advertising agency renders to its 
clients in consideration of the commissions received from the 
newspapers, magazines, radio stations, etc. No additional charge 
is customary for media-selection service. I 


5. Space Buying 

After the media recommendation has been approved, it is 
necessary to make arrangements for purchasing the publication 
space, radio time or outdoor displays. In small agencies, it is not 
practicable to have a separate department to carry out this func- 
tion, in which case the space is purchased by one of the principals 
of the firm. In larger agencies, the space-buying job is assigned 
to a department consisting of one or more space buyers and the 
necessary assistants. 

Prior to the actual purchasing of space, a media recommenda- 
tion may have been made as described in the preceding chapter. 
Where no formal media recommendation has been prepared in 
advance of the space-buying operation, there is always at least 
an informal media recommendation. 

Space in newspapers and magazines is generally contracted for 
in advance for a period of a year. The contracts with newspapers 
sometimes call for “space as required.” Radio time is purchased 
in terms of weeks of broadcasting, thirteen weeks generally be- 
ing the minimum contract period. Frequently, radio time is con- 
tracted for longer periods, contracts being commonly issued for 
twenty-six, thirty-nine, or fifty-two weeks. 


With the media recommendation at hand, the space buyer 
refers to various statistical records such as Standard Rate & 
Data to secure the terms and conditions for purchasing space 
from each source. Sometimes when it is not possible to secure 
sufficient information from the published data, the buyer must 
contact representatives of the radio station, periodical or out- 
door plant. 




Most of the printed advertising media (newspapers and maga- 
zines) have either their own direct salesmen or a special repre- 
sentative located in each of the principal cities of the country. 
The appointed representatives are usually companies that make 
a business of representing newspapers or magazines. They are 
commonly called ‘‘space reps." The function of the space repre- 
sentative is much the same as was that of the advertising agency 
itself in the early days of the business. The space representative 
has a contract with each of a number of newspapers or other 
publications. He solicits business from the agencies and acts 
very much like a direct salesman for the paper. Often the space 
representative forwards the copy to the paper and collects from 
the advertising agency, in which case he furnishes bills for the 
space and proof of its insertion. 


After the space buyer has secured the necessary facts regard- 
ing the advertising media, he prepares and issues contracts. Each 
contract covers the space to be used by one client only. Although 
the advertising agency may use space in the same periodical or 
radio station for many clients, the space is contracted for each 
client separately. 

It may be that the rate charged for the advertising space 
varies from one client to another. Such rate differences occur 
because of different total quantities of space contracted for and 
different times of placing contracts. It is important to note here 
that newspapers, magazines and radio stations offer different 
rates for advertising space depending on the conditions under 
which they serve the advertiser. The rate for a black-and-white 
advertisement is usually less than for a two-color one; likewise, 
a two-color advertisement is cheaper than a four-color one. 

Special positions take special charges; for example, an adver- 
tisement on the financial page or on the sports page will take a 
higher rate than one which can be inserted anywhere in the 



paper; likewise, magazines charge more for the inside front or 
back cover than for space elsewhere in the publication. 

In addition to these variances in rate, many newspapers offer 
combination rates for combination advertisements that are run 
both evening and morning, or that are run both daily and on 
Sunday. As a general rule, all newspapers charge higher rates 
for space in Sunday editions than in daily editions. Some news- 
papers offer “sliding-scale” rates; that is, the rate per line is set 
on a minimum amount of space, and if the advertiser uses more 
space, the rate is reduced. For example, a paper might offer a 
rate of thirty cents a line for the first two thousand lines, after 
which the rate is reduced to twenty-five cents a line until the 
total amount of space during the year has equaled five thousand 
lines, at which time the rate will be reduced to perhaps twenty 
cents. Often these rate reductions of sliding-scale papers are 
retroactive to the beginning of the contract year. 

There are many small weekly newspapers published through- 
out the country. These weekly newspapers are excellent adver- 
tising media for certain advertisers, but buying space in these 
papers is more difficult than carrying on business with the larger 
daily papers. For this reason, several associations have been 
formed to represent groups of weekly papers. These associations 
offer space in a large number of weekly papers. Space contracts 
sometimes can be let for a group of papers through such associa- 
tions. The associations then assume the responsibility for billing 
and for furnishing copies of the papers in which the advertising 

Contracts for advertising space in newspapers, whether small 
or large, and for all kinds of magazines will ordinarily include 
the following information: 

1 . The name of the advertising agency contracting for space. 

2. The name of the client on whose account space is pur- 

3. The product to be advertised. 

4. The kind of space purchased— whether daily, Sunday, 


combination daily and Sunday, combination morning and 
evening, etc. 

5. The rates at which space is purchased. 

6. The frequency of insertions (in reference to magazines). 

7. The position requested (run-of-paper, back cover, front 

cover, financial page, etc.). 

8. The period covered by the contract (this is usually one 
year) . 

The above list includes the major items; however, the con- 
tract often includes further specifications, such as to whom 
tear pages or proofs of insertion are to be sent, where bills for 
advertising are to be sent, how many copies of such bills are 
required, and the general terms and conditions of the contract. 


Standard conditions governing advertising contracts and or- 
ders were adopted in 1920 and revised in 1933 by the American 
Newspaper Publishers Association, Periodical Publishers Asso- 
ciation, Agricultural Publishers Association, and the Associated 
Business Papers, in cooperation with the American Association 
of Advertising Agencies. Agencies that are members of the 
American Association of Advertising Agencies or that are “rec- 
ognized” by one of the publishers’ associations listed,* usually 
print these terms and conditions on the reverse side of each 
contract. (See Figure 5.) If the standard conditions are changed 
in any way, there is a possibility that such a change could affect 
the liability of the agency and any change in these conditions 
could result in confusion and delay. For conditions, see page 44. 

Contracts for radio time and outdoor advertising usually take 
a form that is different from contracts for newspaper and maga- 
zine space. When network radio shows are purchased, special 
contracts are drawn up to cover each situation. Spot radio broad- 
cast contracts are much simpler in form and follow a pattern 
similar to the contract for printed advertising space in news- 
papers and magazines. 

* See Appendix, page 286 




Governing Advertising Contracts and Orders 
Adopted 1920 and Revised 1933 by 
American Newspaper Publishers Association 
Periodical Publishers' Association of America 
Agricultural Publishers Association, and 
The Associated Business Papers, Inc. 

In cooperation with 

American Association of Advertising Agencies 

(a) . The Agency agrees to pay and the publisher agrees to hold the agency 
solely liable for payment for the advertising covered by this contract. 

The agency personally agrees to pay for advertising covered by this contract 
at the office of the publisher or his authorized representative on or before the 
last day of the month following that in which the advertising is published unless 
otherwise stipulated on publisher's rate card on which this contract was based, 
or when cash discount is deducted but payment date not specified on the pub- 
lisher's rate card, on the 15th of the month following. 

Bills must be rendered not less often than monthly but failure to do so shall not 
constitute breach of contract. 

(b) . The agency agrees to pay in the manner specified in paragraph (a) for 
all drawings, composition, cuts or mats if furnished by the publisher at the re- 
quest of the agency provided it is the practice of the publisher to charge for 
such service. 

(c) . Cuts and mats shall be sent to the publisher prepaid. If they are not, the 
publisher may accept them, and pay transportation and import charges and 
the agency shall promptly reimburse the publisher. 

(d) . If at the end of the advertising period named in the contract or upon prior 
termination of the contract for any cause, the agency has not used the full 
amount of advertising contracted for, the agency shall pay to the publisher such 
additional sum on all advertising so published as shall be equal to the differ- 
ence, if any, between the amount due at the rate named in the contract and the 
amount due at the rate applicable to the quantity of space used, according to 
that schedule of advertising rates of the publisher on which the contract was 
based, and upon such expiration or termination said additional sum shall be- 
come immediately due and payable. Short rate bills must be rendered within 
sixty days after the expiration of the contract period, otherwise the publisher 
agrees to a settlement at the rate named in the original contract. Unless other- 

Fig. 5.— Standard Conditions Governing Advertising Contracts 
and Orders. 



wise expressed on the face hereof, this contract may be cancelled by the 
agency, or less space used, in accordance with the provisions of this paragraph. 

(e) . Any bill rendered to the agency by the publisher shall be conclusive as to 
the correctness of the items therein set forth and shall constitute an account 
stated unless written objection is made thereto by the publisher or the agency 
within sixty days from the rendering thereof. 

(f) . The publisher reserves the right to cancel the contract at any time upon 
default by the agency in the payment of bills, or other breach, or in the event 
of any material violation on the part of the agency of any of the conditions 
herein named; and upon such cancellation all advertising done hereunder, in- 
cluding short rates or other charges under this contract, and unpaid, shall be- 
come immediately due and payable. In case of delinquency in payment or 
impaired credit of the agency the publisher shall have the right at any time to 
change the requirements as to the terms of payment for further advertising 
under this contract as he may see fit. 

(g) . In all cases where date of payment is material, unless otherwise stipu- 
lated the postmark date on the envelope properly addressed to the publisher or 
to his representative shall be considered the date when payment was made. 


(a) . All rates shall be published. There shall be no secret rates, rebates, or 
agreements affecting rates. All rates shall be furnished agencies if requested. 

(b) . "Publisher's rate card" shall be understood to mean that schedule of ad- 
vertising rates of the publisher upon which this contract is based. 

(c) . The rate stated in the contract is the minimum rate at which an equal or 
less amount of space, for the same class of advertising, to be published in a like 
position, under the same conditions, within the same period of time, can bo 

(d) . If additional space is used within the period covered by the contract where 
the publisher has a schedule of graduated rates, any lower rate shall be given 
if earned, according to the publisher's rate card on which this contract is based. 


(a) . The subject matter, form, size, wording, illustration and typography of the 
advertising shall be subject to the approval of the publisher but unless other- 
wise authorized in advance no change shall be made without the consent of 
the agency. 

(b) . If the publisher is unable to set any advertisement in the type or style re- 
quested, he may set such advertisement in such other type or style as in his 
opinion most nearly corresponds thereto, and the advertisement may be inserted 

Fig. 5 (contd.) 



without submission of proof unless proof before insertion is requested on the 
face of the order. 

(c) . Where cuts, electrotypes, or material furnished by the agency occupy 
more space than specified in the contract or insertion order, publisher should 
immediately communicate with the agency for definite instructions. If the pub- 
lisher is unable to secure definite instructions from the agency, the advertising 
shall be omitted. 

(d) . If agency has contracted for a series of insertions in a publication, and 
before closing date insertion order and copy for next issue have not been 
received by publisher, publisher shall notify agency and follow agency's in- 

(e) . Advertisements ordered set in "space as required" shall be measured from 
office ad. rule to office ad. rule. 


(a). The page containing the advertising or, at the request of the agency a 
copy of each issue in which the advertising appears, shall be mailed or other- 
wise supplied to the agency, which shall be deemed to'have received such copy 
or page unless the publisher is notified in writing of the non-receipt thereof 
within thirty days after the date of publication. The publisher may mail or 
otherwise supply an affidavit of publication in lieu of a second copy or page 
containing the advertisement. Failure to forward or furnish such copy, page or 
affidavit shall not constitute a breach of the contract. 


(a). Unless the publisher is a member of the Audit Bureau of Circulations, the 
agency shall be entitled, upon request, to a statement of net paid circulation 
verified by a certified public accountant, or in lieu thereof to the right to ex- 
amine the publisher's circulation books. 


(a). Failure by the publisher to insert in any particular issue or issues invalidates 
the order for insertion in the missed issue but shall not constitute a breach of 

In newspapers the advertising must appear in all regular editions issued on the 
date for which the advertising is ordered. Advertisements omitted from any 
particular edition or editions must be reported to the agency and if received in 
time and omitted through fault of publisher must be made up or adjusted unless 
otherwise instructed. 

Unless otherwise stipulated, the publisher shall have the right to omit any adver- 
tisement when the space allotted to advertising in the issue for which such ad- 

Fig. 5 (contd.) 

4 e 


vertisemenf is ordered has all been taken, and also to limit the amount of space 
an advertiser may use in any one issue. 


(a) . The agency agrees that it will not rebate to its client any part of the com- 
mission allowed by the publisher. 

(b) . In dealing with agencies, the publisher shall follow a uniform policy to 
avoid discrimination. 

(c) Unless later date is specified in publisher's rate card, advertising in news- 
papers shall begin within thirty days from the date of this contract, or con- 
tract becomes null and void. 

(d) A waiver by the publisher of any default or breach by the agency shall not 
be considered as a waiver of any subsequent default or breach of the same or 
any other provisions hereof. 

Fig. 5 (contd.) 


After the space contracts have been issued and prior to the 
insertion of each advertisement in the printed media, it is neces- 
sary to issue what is commonly called an insertion order. The 
space contract has simply reserved the space and established the 
terms and conditions under which the purchase is to be made. 
The insertion order is a detailed description of the space to be 
used for each advertisement. When the agency has prepared an 
advertisement, the insertion order is issued by the space-buying 
department. The insertion order is often sent with copy instruc- 
tions, mats, plates, etc. The insertion order should contain the 

1. The name of the advertising agency. 

2. The name of the advertiser. 

3. The name of the product to be advertised. 

4. The date for the insertion of the advertising. (This in- 
cludes the edition, or editions if the publication has more 
than one edition.) 

5. The amount of space to be occupied by the advertisement. 



6. The position requested in the publication. 

7. The number of colors to be used in printing the adver- 

In addition, the agency often includes other information on 
the insertion order, such as to whom tear pages or copies of the 
publication are to be sent as proof of insertion; the number of 
copies of invoices requested and to whom they are to be sent; 
and special instructions regarding the printing of the advertise- 
ment. This usually refers to position and may include a state- 
ment that the advertisement is not to be printed next to com- 
peting copy, etc. 

After the space-buying department has issued the insertion 
order, it has completed its function in connection with space 
buying with only one exception. It is the responsibility of the 
space-buying department to see that the agency fulfils its con- 
tract requirements with each vendor of advertising media. 

It is important to note that an advertising agency ordinarily 
does not act as an agent in the accepted legal sense. The adver- 
tising agency is itself financially responsible for carrying out its 
commitments. It is financially liable to pay for the space it buys. 
Whether or not the client pays is of no legal importance in the 
transaction between the agency and the publisher, radio sta- 
tion, etc. 

Many newspapers, magazines, radio stations and outdoor ad- 
vertising plants offer cash discounts in consideration of prompt 
payment of invoices. To secure this additional revenue, the 
agency must pay its bills in accordance with the vendors' terms. 
Therefore, it becomes important to set up a means by which the 
agency can collect from the advertiser before the cash discount 
payment date offered by the vendor. This subject will be dis- 
cussed in a later chapter, but it should be emphasized here that 
the term “advertising agency” is misleading. The advertising 
agency, in the legal sense, is not an agent. It is responsible for 
whatever commitments for advertising space it makes. 


6. Checking Advertising 


M. HE purchaser of an article wants to be sure he receives it and 
wants to verify the quantity and quality before he pays for it. 
Printed advertising is purchased in accordance with definite 
terms and conditions as to quantity, quality and time of publi- 
cation. Before the agency makes payment to the publisher, it is 
desirable to check the advertising to determine whether it meets 
the specifications in accordance with the contract and order. 
In most agencies one or more persons are assigned the job of 
checking the advertising. This is a routine job and usually fol- 
lows a more or less standard pattern. 


A copy of each newspaper insertion order is sent to the check- 
ing department. Newspaper orders are filed by state and city in 
which the paper is published. Upon receipt of publications, 
agencies usually sort them in the same manner in which in- 
sertion orders are filed. Then, by referring to the insertion order 
bearing the same name as the publication, the checker is able 
to determine what advertising to look for. 

For example, if the checking department receives a copy of 
the Chicago Sun , the checker then looks in the file under “Illi- 
nois, Chicago, Sun .” A copy of the insertion order covering the 
advertising should be filed there. If the title discloses an inser- 
tion order for “Illinois, Chicago, Sun ” covering an insertion in 
a particular edition on a specified date, the checker then looks 
at the order further to find the name of the advertiser and the 
product, after which he runs through the paper to locate the 

When this is located, the checker examines it for quality and 



correctness. Assuming that the correct advertisement has been 
published and that the quality of printing is acceptable, the 
checker then measures the advertisement to determine the 
amount of space occupied by it. Newspaper space is usually sold 
in lines or inches. Daily papers usually sell space by lines; the 
small papers and weekly papers usually sell it by inches. An inch 
represents fourteen lines of “agate” type. The insertion order 
indicates whether the space is purchased by lines or inches. The 
checker is furnished with a rule calibrated in both. A line of 
space is the depth measure, a column is the width measure. 

In other words, if an advertisement occupies three columns in 
width and ten lines in depth, the space measurement would be 
thirty lines. The same rule holds true when the unit is inches 
instead of lines; that is, if an advertisement is three columns 
wide and three inches deep, the measurement would be nine 

Some agencies have established the practice of rating the vari- 
ous positions in which advertising appears in newspapers. The 
purpose of such a rating system is to determine whether or not 
a particular newspaper is giving the advertiser reasonably good 
positions in the paper. Generally, advertising which appears on 
the first few pages of a newspaper is considered to be more effec- 

* It has been standard practice tor a number of vears to pay for newspaper 
space occupied by the advertisement from the top rule to the bottom rule, 
allowing the paper nothing for white space appearing either above or below 
the advertisement. Advertisements are designed to occupy a known quantity 
of space, but because the advertising agency furnishes the newspaper with 
mats instead of electrotypes, the space actually occupied by the advertise- 
ment is usually from one to two percent less than the space that the adver- 
tisement was designed for. This shrinkage occurs because the printers pour 
hot lead into the mat. When the lead cools, there is a certain amount of 
contraction and the cold lead is used to print the advertisement. The agency 
pays only for the actual space occupied by the advertisement, not the space 
ordered. For example, if the space ordered is three columns wide and fifty 
lines deep, it is quite likely that the advertisement will only occupy a space 
three columns wide and forty-nine lines deep. The measurement of the ad 
should in this case be three columns times forty-nine lines, or 147 lines. The 
advertising agency wants to pay the paper for 147 lines, not for 150 lines. It 
is evident that in a large advertising campaign, this one to two percent 
shrinkage can be a substantial amount. 



tive than that appearing far back in the paper. Advertising 
appearing in the upper right-hand corner of a page generally 
may be considered more effective than advertising appearing on 
the left bottom corner, etc. 

After advertisement positions are rated, position reports are 
prepared to show the number of advertisements that secured 
the best position, the number that secured the second best 
position, etc. With these reports, the space buyer is in a posi- 
tion to determine which papers have been giving the advertiser 
reasonably good advertising positions and which have not. He 
can then call the representative of the paper that is not giving 
the advertiser reasonably good advertising positions and can 
demand greater consideration in the future. 

Where the agency rates the positions of advertising, the key 
or code for such positions is noted on the insertion order at the 
time the checker examines and measures the advertisement. The 
position indication would be as follows: 

Date of 

Insertion Ad Number Space Ordered Space Used Position 
10/20 1234 180 lines 178 lines A 


Checking magazine and trade-paper space is considerably 
simpler than checking newspaper space. Space in magazines is 
usually purchased in units of pages or fractions thereof, although 
occasionally magazines and trade papers sell space by columns 
or inches. The usual magazine advertisement occupying a page, 
half-page, quarter-page, etc. is not subject to shrinkage. This is 
because electrotypes and half-tones are used instead of mats. 
These are built to occupy the exact amount of space ordered. 
The checker, then, needs to inspect a magazine advertisement 
only for quality of print and position. 

Some agencies, in addition to checking the appearance of 
advertising for quality and quantity, wish to determine the posi- 



tion secured in either a paper or a magazine. There are differ- 
ent methods of rating the comparative position of advertise- 
ments, but among the most important factors to be considered 

1. The page number on which the advertisement appears. 

2. The section in which the advertisement appears (such as 
buyer's guide, society section, financial section, etc.). 

3. The position on the page. 

4. Whether or not the advertisement appears adjacent to 
competitive copy. 

Where the agency is interested in rating the position of the 
advertising, the checker usually is furnished with a code for this 
purpose. The code is entered on an accounting record from 
which the agency can prepare a report showing the various 
positions secured from the different publications. 


The checking of radio advertising is, obviously, a different 
matter from checking printed advertising. Usually the broad- 
casting station sends the agency an affidavit certifying the fact 
that each message or program was actually broadcast. Such affi- 
davits are required by agencies before bills for broadcasting are 
paid. At times, advertising agencies have attempted to listen to 
each broadcast to check the message or program, but this prac- 
tice was never general. Most agencies rely on the honesty of the 
broadcasting stations and on other reports secured from the 
advertiser or his distributors in each town where a program is 
broadcast. These distributors, of course, are acquainted with the 
facts concerning the advertiser's program. Since the advertising 
is important to the distributor, it may be expected that the dis- 
tributor would report any omissions or other defects in the radio 
advertising campaign. 

In addition, there is a radio checking service available on both 
the East and West Coasts. Clients are furnished with actual 
recordings of what is said on the air waves on a particular pro- 


gram, product or topic, or, occasionally, with program scripts. 

There is available, also, a spot-checking service, with listeners 
or monitors in several hundred cities. Agencies and advertisers 
are advised whether the spots were actually used at the time they 
were scheduled; what the adjacencies were; the caliber of the 
presentation; and other pertinent data bearing on the effective- 
ness of the spot message. 


It is not a general practice for agencies to check the appear- 
ance of outdoor advertising and car cards. Lithographs or other 
material are sent to the outdoor advertising plants, which certify 
the actual placing and appearance of the advertising. It would 
be extremely difficult for an agency to check the posting date and 
the quality of the posting of each outdoor sign. The cost of such 
checking would not be warranted. For this reason, agencies do 
little or no checking of outdoor advertising space. 

The National Outdoor Advertising Bureau does render a 
valuable service in this regard. In addition to checking the 
appearance of outdoor advertising, the Bureau furnishes other 

One agency checked every outdoor location to determine the 
date on which each billboard was posted and the quality of the 
posting. In addition, for several years, this agency made inten- 
sive studies to determine the comparative value of the locations 
used. This practice was discontinued by the agency after a few 
years when it was found that the outdoor plants billed correctly 
for the space used and that the statistics furnished by the plant 
owners were reliable. This, they concluded, made independent 
checking and study of little value. 

Checking the appearance of advertising in the manner dis- 
cussed is a service that the agency renders to the advertiser in 
consideration of the commissions received from the advertising 
media. No special or extra charge is made for such service. 

* See Appendix, page 328 


7. Advertising Materials, Publicity 
and Miscellaneous 

VERT AIN materials are necessary to produce a printed adver- 
tisement. These are called mechanical production or advertis- 
ing materials. They include art work, photography, typography, 
engravings, half-tones, electrotypes, mats, stereos, photostats, 



It is highly desirable and almost essential for the agency to 
specify and purchase these materials, for only in this way can it 
control the final result or appearance of the advertising. Pro- 
duction work starts almost as soon as the contact man and the 
client have agreed on an advertising campaign, at which time 
it becomes necessary to visualize, at least roughly, the various 
advertisements as they are to appear. 

To do this, the agency prepares rough sketches of each ad- 
vertisement. Sometimes these sketches merely take the form of 
rough lay-outs that are quickly penciled up by the agency's art 
department. In other cases, the visuals become more compre- 
hensive and include an explanation of the final art work and a 
paste-up of the whole advertisement including the type, etc. 

In any event, when the kind of advertisement has finally been 
approved by the client, the agency sets about procuring the 
necessary materials for printing it. The agency at the outset 
prepares a timetable showing on what dates each item of ma- 
terial is required, because it is necessary to secure the art work 
before plates can be made, etc., and all materials, including the 



final mats or half-tones, must be complete in time to send them 
to the publisher for printing the advertisement. 


Orders are issued in the production department of an adver- 
tising agency for each of the materials as it is required; and, as 
the materials are received with bills from suppliers, all of the 
production elements for the advertisement are gathered to- 
gether until the final piece of material is received. 

The engraving, electrotype, mat or stereo is forwarded to the 
publication and the cost of all of the items is invoiced to the 
client. In some agencies, the art work required for the produc- 
tion of advertising is segregated from the other materials. In 
such cases, the securing of the needed art work becomes the 
function of the art director or art department and the securing 
of the other materials is delegated to the production manager 
or production department. 

There is no standard of procedure in the operation of pro- 
duction and art departments of advertising agencies but there 
is some uniformity of operation among agencies in regard to 
certain parts of the art and production work. Most agencies pre- 
pare rough lay-outs and nearly all agencies undertake to secure 
the final art work required, either by creating the art work in 
their own department or by purchasing it on the outside. Nearly 
all agencies undertake to secure the other materials required, 
such as type, electros, half-tones and mats. The difference in the 
operation of production departments among agencies comes in 
the charges made for performing the functions. This subject 
will be discussed in the chapter “Basis of the Agency’s Com- 

Some agencies operate production departments in which the 
entire responsibility for securing all required mechanical ele- 
ments rests within the department. This includes the schedul- 
ing of materials so that they are received when they are required. 
It also includes the responsibility of getting the final plates 
or mats to the publisher before a closing date. In other agen- 



cies, the production department is charged merely with the 
responsibility of purchasing the advertising materials required; 
the scheduling and expediting duties are delegated to a separate 
traffic department. 


Publicity, in the sense it is used here, may be defined as the 
dissemination of information regarding products or industries 
without the overt purpose of selling. It takes the form of news 
stories and feature articles in the press, in national magazines, 
in trade papers and in farm papers. Some publicity is also ac- 
complished through the radio in connection with news and 
other programs. There is a growing feeling among agencies that 
publicity campaigns can be best conducted by publicity or pub- 
lic relations firms which specialize in this work. This feeling is 
emphasized by the attitude among publishers that advertising 
agencies, in attempting to secure publicity, are actually en- 
deavoring to divert what should be paid advertising into free 

Nevertheless there are a number of agencies that have com- 
pletely organized publicity departments. These agencies plan, 
create, develop and place publicity as an extra service to certain 
clients. Unless the advertiser's account is very large and highly 
profitable, the agency cannot afford to provide a publicity serv- 
ice without arranging for a special fee to cover the cost of the 

On the other hand, most agencies do counsel and advise with 
their clients concerning publicity. They further assist the clients 
by cooperating with the publicity firms which handle that phase 
of service for the client. 


In addition to the principal services which have been dis- 
cussed, agencies perform many diverse and incidental services, 
dependent on the need of the advertiser and the skill and elas- 
ticity of the agency. Some of these miscellaneous services are: 



1. Making a study of competitive advertising. 

2. Assisting the client in his own sales work in order to 
insure the greatest effectiveness from the advertising. 
(This type of service often includes the attendance at 

sales conventions, and the preparation of material to be 
used for dealers' and distributors’ conventions.) 

3. Testing copy— an innovation in the agency service.* 

4. Preparing house organs, catalogs, and the like. 

5. Testing recipes for making food products. 

6. Securing personnel for the client’s advertising depart- 

7. Preparing booklets to be distributed to dealers and 

8. Preparing sales manuals, etc. 

9. Preparing exhibits for conventions and industry shows. 

10. Supervising the production of commercial films. 

Usually all of these special services involve expenditures on 
the part of the agency; therefore, since the average advertising 
account does not provide a sufficient margin of profit to allow 
for such expenditures, the agency usually arranges for a special 
fee for doing such work. These fees are generally on a cost-plus 
basis, but such jobs are sometimes undertaken on a flat fee basis 
as well. 

* Certain methods have been developed for pretesting the effectiveness of 
advertising copy. These methods include checking the results of test cam- 
paigns via coupons or retail sales; checking the results from keyed copy 
through consumer juries; and mailing questionnaires to consumers to 
secure their opinions. There are several organizations which specialize in 
rating advertising copy and radio broadcasts. The services of these specialist 
organizations are often purchased by agencies. 


8. Billing the Advertising 


JL HE mechanical details involved in billing the advertiser 
for the advertising will he discussed in detail in Part II of this 
book. This chapter outlines some of the principles relative 
to the subject and the functions that are performed by the 
agency in this respect. 

The advertising agency is semiprofessional, offering a com- 
bination of commercial and professional services. The agency 
attempts only to assist the advertiser by selecting the media to 
be used, by conceiving the advertising campaign and by devel- 
oping it into the final advertising message. Today agencies do 
not compete with one another by offering different payment 
terms or by claiming that they can buy space below published 


The agency should not act as the banker for the advertiser. 
In fact, the average advertising agency has a smaller capital 
than most of its clients. The agency serves a useful professional 
function through the special skills of its employees. It renders 
inconsequential service to the advertiser in its financial deal- 
ings with media vendors. 

For these reasons it is a cardinal principle of the advertising- 
agency business that all advertising space and radio time should 
be billed to the client sufficiently in advance to provide for pay- 
ment to the agency prior to the date upon which the agency is 
obligated to pay the media. 

Invoices for magazine and trade-paper space are usually pre- 
pared and sent to clients fifteen days before the date on which 
the agency is required to pay the publication. If the advertiser 



wishes to earn the cash discount, he must pay the agency prior 
to the date on which the agency must pay the publication. In 
practice, no well-run agency will continue to serve the adver- 
tiser who does not discount his bills. Magazines and trade papers 
have various payment terms, so no general rule can be estab- 
lished concerning the time of the month in which magazine 
and trade-paper advertising is billed. The billing time varies 
according to the terms of the publication. 


It is very important to note that the agency’s liability for 
magazine advertising may be much more substantial than is 
often realized. Frequently, the advertising agency takes a greater 
financial risk than any other creditor of the advertiser. This is 
because magazines often go to press months in advance of pub- 
lication. After the magazine is once on the press, the agency’s 
liability has been fixed. Thus it will be seen that an agency 
can be and often is liable to magazines for advertisements for a 
cumulative period covering two or three months. Magazines 
have established “closing dates’’ and “cancellation dates.” The 
cancellation date is the last day upon which the advertiser can 
cancel the advertising. The closing date is the date on which the 
publication goes to press. Unless the advertising agency has con- 
vincing proof that the advertiser is fully capable of meeting its 
obligations, it is desirable to invoice advertising space so as to 
collect from the advertiser on or before the cancellation date 
for each magazine. After this date the liability of the agency is 
fixed regardless of whether the advertiser can pay the agency. 

Newspaper advertising space, of course, can appear through- 
out an entire calendar month. Newspapers usually bill on a 
monthly basis, although some weeklies bill after each issue. Ad- 
vertising agencies usually invoice newspaper space on a monthly 
basis. Since, as has been noted under the subject of checking 
newspaper advertising, newspaper space ordered is subject to 
shrinkage, it is impossible to complete accurate billing on a 



space-used basis until after all the newspaper advertising for the 
month has been measured. 

It is common for advertisers to use newspapers that are pub- 
lished hundreds and thousands of miles distant from the place 
of business of the advertising agency. For this reason, copies of 
newspapers frequently reach the agency from five days to a week 
after the issuance of the paper. This means that checking of a 
month's newspaper advertising frequently cannot be completed 
until about the tenth of the subsequent month. If an agency 
were to defer billing until newspaper advertising for a calendar 
month was checked, frequently the bill could not be sent to the 
advertiser until after the tenth of the subsequent month. The 
standard payment terms of most newspapers call for payment by 
the agency to the newspaper on either the tenth, fifteenth, twen- 
tieth or twenty-fifth of the month subsequent to the advertising. 

From this it is evident that final accurate billing for news- 
paper space cannot be accomplished early enough to permit the 
receipt of the funds by the agency before the date on which the 
agency must pay the newspaper. It is necessary for agencies to 
find a method by which they can secure payment from the ad- 
vertiser in advance of the date upon which they must make 
payment to the newspapers. 

Two different methods of billing for newspaper space have 
been developed to accomplish the desired result. 


One method is to bill all space ordered during a month on 
the basis of space ordered. Where this method is used, the 
agency sends its invoice to the client by the first or second day of 
each month to cover the advertising space ordered for the pre- 
vious month. After all the advertising space has been checked, 
the agency sends the client a credit memo to cover omissions and 
shrinkage. This method, which is sometimes called “billing on 
a space-ordered basis," has the disadvantage of involving double 
work. First, a detailed invoice on a space-ordered basis must be 
prepared; second, a credit memo covering omissions and shrink- 


age is prepared. The method has the same disadvantages for the 
advertiser in that he must audit both the original bill and the 
credit memo. 


The more desirable method for billing newspaper space so 
that the agency secures payment before it must pay the publish- 
ers is to “prebill.” A prebill is simply a commitment billing. It 
consists of an invoice, sent on the first of the month following 
advertising and containing one line only, something like this: 

Newspaper space for the month of June— $92,000 

The amount of the monthly prebill can be secured by reference 
to the media recommendation, which is sometimes later refined 
and called an “estimate.” On the twentieth or twenty-fifth of the 
month following advertising, the agency prepares a complete 
detailed invoice on a space-checked basis. 

The advertiser’s first reaction to the prebill method is, often, 
that he is paying the agency a large sum of money without 
any proof of the actual debt. This is without basis because: 
First, the advertiser knows what his advertising program calls 
for and receives copies of the newspapers containing the ad- 
vertising almost currently with its appearance; and second, 
by the time the advertiser pays the agency (the tenth of the 
month following insertion) the agency has already committed 
itself in substantial amounts for advertising that will appear 
prior to the payment of the previous month’s invoice. 

Many of the largest advertisers in the country are paying their 
agencies on a prebill basis which has the distinct advantage of 
avoiding duplicate work, since only one detailed invoice is pre- 
pared by the agency and audited by the advertiser. 

Radio time is often invoiced on a weekly basis, invoices being 
issued immediately following each week’s broadcasting. It is a 
simple matter for the agency to prepare an invoice covering 
radio time. Such bills are mailed to advertisers either on the 
first day of each week covering the prior week’s broadcasting, 



or on the first or second day of each month covering the broad- 
casting of the previous month. 

Radio talent is usually invoiced on a weekly basis, invoices 
being prepared by the agency and sent to advertisers on the first 
day of each week covering the talent costs of the prior week. 
Sometimes agencies prefer to invoice for radio talent on a 
monthly basis in which case the agency must meet current 
weekly payments and collect from the advertiser after the close 
of each month. Agencies usually add either 15 or 17.65 percent 
to the cost of radio talent. When the 15 percent is added, the 
commission is only 13 percent; whereas when 17.65 percent is 
added, the commission is the standard 15 percent which agencies 
also earn on printed space.* 

Outdoor space is billed monthly and invoices cover posting 
for the current month. All bills are due ten days from the date 
of issuance. 


Advertising materials purchased by the agency for the adver- 
tiser include such items as art work, typography, engravings, 
electros, half-tones, mats, stereos, photostats, radio transuip- 
tions and lithography used for outdoor advertising. 

It is more or less standard practice for the agency to group all 
of the advertising materials purchased for a particular adver- 
tisement and to bill them on one invoice. There are two meth- 
ods: (1) billing monthly for all items purchased during the 
month, and (2) billing jobs for all materials for one advertise- 
ment when they have been secured. 

* Where agencies buy space, as in the case of publications, and radio time. 
15 percent is deducted from the quoted rate and is retained by the agency 
as commission. Adding 17.65 percent to cost to determine selling price is the 
equivalent of deducting 15 percent from selling price to determine cost, l eu 

Cost $ 85.00 Selling price $100.00 

Add 17.65% of $85.00 15.00 Less 15% of $100.00 15.00 

Selling price $100.00 Cost $ 85.00 



There is no standard method for fixing the price of the adver- 
tising materials billed by the agency to its clients. Perhaps the 
most common current method is for the agency to add 15 or 17.65 
percent to the cost of the items purchased. Many agencies add 
17.65 percent so that the selling price provides for a 15 percent 
commission. The subject of the agency’s fee in connection with 
the purchase of advertising materials will be discussed in more 
detail later. 

The same rule is not always followed in connection with the 
creation and preparation of catalogs, house organs, dealer helps 
and direct-mail advertising. Agencies usually provide for a spe- 
cial fee in connection with the preparation of these items which 
require the time and effort of the creative personnel of the ad- 
vertising agency, since any commission based on a percentage of 
the cost of these items could not possibly compensate the agency 
for creative work. This creative work when it is used in connec- 
tion with regular advertising media is compensated for by the 
commission received on the space used. 

6 3 

9. Basis of the Agency’s Compensation 


J.HE service that an advertising agency performs for a client 
is always tailored to fit the particular client's requirements. No 
two agencies deliver exactly the same services, and no one agency 
delivers exactly the same service to any two of its clients. The 
answer to the question of what an agency should charge its 
client for the work performed must of necessity be based on the 
quantity and quality of the work. 

The commission system of compensation is a historical part 
of the agency business. Although attempts have been made to 
get away from the commission form of compensation for per- 
sonal service in this business, such efforts have not been success- 
ful. Under the commission system, the agency's compensation 
(a commission paid by the advertising media to the agency 
based on a percentage of the advertising space or time pur- 
chased) is figured on the volume of advertising space and mate- 
rials purchased rather than on the amount or quality of work 

To determine what services can be performed for the com- 
mission to be received from the advertising media, the agency 
must weigh the commission revenue against the estimated cost 
of performing the service. When this is done, it is found that 
many extensive services can be performed for one client, where 
only limited service can be performed for another. 


It is necessary, then, to survey the several types of advertising 
agencies and the several types of advertising accounts before 
the elements of service performed and the basis of the agency's 
compensation for performing them can be discussed. For con- 
venience, agencies may be classified as follows: 



/. General advertising. In this category may be placed agen- 
cies whose accounts consist of those in which the client's product 
is advertised to the general public through the customary ad- 
vertising media, including newspapers, magazines, trade papers, 
farm papers, radio, outdoor displays and car cards. 

2 . Industrial agencies . In this category may be included the 
advertising agencies that specialize in industrial accounts which 
advertise machinery, electrical devices, tools, equipment and 
other articles to the industrial consumer and not to the gen- 
eral public. In exceptional cases, articles that the agency is try- 
ing to sell to industrial consumers are actually advertised to the 
general public in order to secure a public demand for a prod- 
uct. An example of this type of advertising is the advertising 
of thermostatic controls which eventually become a part of 
heating systems. 

j. Agency specialists. In this group may be placed agencies 
not included in groups one and two, such as, for instance, those 
specializing in foreign, retail store, financial, classified, fashion 
or theatrical advertising. 

The differentiating factor in classifying the agencies into the 
three types has been the type of account handled. Each of the 
three types can be subdivided further according to the general 
character of services rendered. The agency whose most power- 
ful selling appeal is created through art work may be typed as 
the art agency; the agency whose principal selling appeal is the 
advertising copy may be typed as the copy agency; the agency 
whose principal strength is in the field of radio advertising may 
be termed the radio agency, etc. 


Before the basis of the agency's compensation can be intelli- 
gently discussed, it is necessary to classify advertising accounts 
by size of advertising appropriation. An account whose annual 
advertising appropriation is $50,000 or less may be considered 
a small account; one whose annual advertising appropriation 
is from $50,000 to $150,000 may be considered a medium-sized 



account; an account whose annual advertising appropriation 
is from $150,000 to $500,000 represents a large advertiser; an 
account whose annual advertising expenditure exceeds $500,000 
is a very large account. 

General advertising agencies in fixing the basis of their com- 
pensation on large or very large accounts usually find that they 
can perform all of the services listed in the chapter “Functions 
Performed by the Modern Advertising Agency” in considera- 
tion for the commissions received from the sale of advertising 
space and materials. The only exception would be research 
studies and publicity. 


General advertising agencies in determining the basis of their 
compensation in connection with handling medium-size ac- 
counts as a rule find that they are able to deliver the following 
services in consideration of the commissions received: 

1. Developing the advertising campaign. 

2. Writing the copy. 

3. Selecting the art work and supervising its preparation. 

4. Analyzing and selecting media. 

5. Buying the advertising media. 

6. Buying the production materials. 

7. Checking the advertising. 

8. Billing the advertising. 

General agencies handling medium-size accounts bill produc- 
tion materials at cost, plus 17.65 or 15 percent. General agencies 
in fixing the fees for handling small accounts usually find that 
they cannot afford to perform the services required by the ad- 
vertiser without securing a fee in addition to the commissions 
received. The cost of planning the campaign, writing the copy, 
etc., when added to the contact cost and the general overhead 
of the agency can, and does in many cases, exceed the commis- 
sions that an agency receives from the advertising. 



When this condition occurs, the agency must arrange for a 
service fee or minimum charge per month or year. This fee is 
fixed by the agency after it determines the cost of the services 
required by the advertiser. Agencies make special arrangements 
with each client where service fees are required. 

The annual appropriations of industrial advertisers, by and 
large, are much smaller than are those of general advertisers. 
The cost of space in trade papers is relatively low and conse- 
quently the industrial agency’s commission income per page of 
advertising is much less than that of the general agency whose 
clients advertise in national magazines or in large papers. 

In addition, the industrial agency advertises specialized and 
technical products which require special skills and experiences 
to handle. Furthermore, the industrial account usually requires 
many collateral or miscellaneous services in connection with 
point-of-sale material, salesmen’s manuals, descriptive folders, 
convention or business-show materials, etc. Because of these fac- 
tors, it follows that the commission income from most indus- 
trial advertising accounts is insufficient to pay the cost of doing 
the needed work. The industrial account usually calls for a 
service fee or some other basis of compensation that will aug- 
ment the commission received. 

Agencies falling in the third, or specialists, classification dif- 
fer so widely from one another that no generalization as to basis 
of compensation can be made. Each case will depend on the 
particulars. The agency often requires experience with an ac- 
count before it can fix its compensation properly. 

All agencies have difficulty in determining the basis of com- 
pensation for research studies, but by far the larger number of 
agencies charge a special fee for conducting any but the most 
cursory investigation of markets or products. A few very large 
agencies maintain research departments and they offer certain 
services free to some larger clients. Because of the historic com- 
mission basis of compensation, an advertiser spending two or 
three million dollars a year in large costly space provides the 



agency with a large commission income allowing a sufficient 
margin for many “extras/' Such accounts are rare. Research 
studies which have a direct bearing on advertising should be 
initiated and supervised by the agency. In most cases, these 
studies are billed to clients at cost plus a commission to cover 
the supervisory service. 

Consultations with the advertiser concerning advertising, 
merchandising, selling and development of the advertising cam- 
paign are nearly always a part of the service the agency renders 
to its client for the media commissions and service fees received. 
It is in this area that the agency performs its most vital and costly 
service. In the larger agency, one or more executives are as- 
signed to an account. They are called contact men. These men 
are usually graduates from other departments, top men in the 
agency, and they carry the responsibility for^ planning and de- 
veloping the campaign and coordinating the various services 
performed. In a small agency, the owners take on the responsi- 
bility for counseling and for planning and developing the cam- 
paign. This service is a free service in nearly every case. 

The production activity of the agency, which includes the 
securing of the art work and advertising materials for the pro- 
duction of advertising, is one of the early functions of adver- 
tising agencies. Under the first open-contract arrangement, 
agencies purchased advertising space and materials for adver- 
tisers at cost plus a commission. Later, instead of adding a 
commission to the cost of the space, the various media allowed 
a commission to the agency. As long as advertising materials 
have been purchased by agencies, they have added a commission 
to compensate them for this service. 

Different agencies use different commission rates in fixing the 
billing price of advertising materials. Many industrial and spe- 
cialized agencies add 17.65 percent to the cost of advertising 
materials. Agencies dealing in low-cost space and agencies han- 
dling small accounts often add a higher percentage. Some gen- 
eral agencies handling medium-size and even large accounts 



Fig. 6. Agency Terms and Conditions. 


add 17.65 per cent, but many of the general agencies add 15 per- 
cent to the cost of advertising materials. 

This practice of adding a fifteen percent commission to the 
cost of advertising materials nets the agency only thirteen per- 
cent. Actual cost studies show that production departments can- 
not operate on a thirteen percent margin. Perhaps ten or fifteen 
years ago there was a sufficient margin of profit from space com- 
missions to make up for a loss incurred in handling the advertis- 
ing materials. This is not the case today. With the advertiser 
clamoring for more and more service, and the increasing cost of 
experienced personnel, the agency is facing the difficult job of 
making both ends meet. There is considerable current opinion 
that production departments must meet expenses. This has 
caused many agencies to add 17.65 percent to the cost of adver- 
tising materials purchased. 


Many agencies carefully define the services that they olfer for 
the fees that they charge. The functions performed, fees charged 
and other conditions are often incorporated by agencies into 
a booklet or other outline carrying a title such as “Standard 
Terms and Conditions.” A sample of one such document is 
shown in Figure 6. 

In the final analysis, what an agency has to sell is the accumu- 
lated experience of its personnel. The fees it receives from clients 
must be based on the amount and cost of services performed for 
them. In other professions, the services are first performed and 
then the fee is fixed based on the amount and cost of such service. 
In the agency, because of the “commission system," the fee is 
fixed first, after which the amount and quality of service must 
be determined. If the cost of the service exceeds the commission 
income, either the cost of the service must be reduced or an 
extra fee charged. 

In the early days of the agency business, few services were 
performed and then the profit margin was large. But as each 
year passed, clients demanded additional services. Now an 


agency must analyze its business in order to determine the cost 
of performing the tailor-made service on each account. It must 
be in a position to tell the client what services can be performed 
for the commissions received and what must be compensated 
for by an extra charge. 

10. Credits and Collections 


llDVERTISING agencies commit themselves to purchase ad- 
vertising space, radio time and advertising materials that are to 
be used exclusively in connection with client’s advertising. Re- 
gardless of whether the client discharges its debt to the agency, 
the agency, ethically and legally, is responsible for its commit- 
ments. An agency cannot hide behind a client’s skirts. 


Magazine space is purchased many months in advance of pub- 
lication. Magazines, trade papers and farm papers go to press 
weeks and months prior to distribution dates. Each publication 
fixes the date on which the agency’s liability is fixed and non- 

Radio time is generally purchased in multiples of thirteen 
weeks of broadcasting. Non-cancellable contracts are entered 
into between the agency and the radio station or network. Ex- 
pensive talent purchased for radio shows is contracted for long 
periods of time. 

Contracts for outdoor advertising are often non-cancellable 
and cover periods of time up to a year. 

Newspaper advertising space cannot be billed until the last 
day of the month of advertising, at which time the agency is 
obligated to pay the newspapers for the advertising space used 
during the entire month. In addition, the advertising to run 
for the next few days probably could not be cancelled prior to 
the publication date. Art work and advertising materials are 
purchased and paid for in many cases weeks or months prior 
to the time the items are invoiced to the advertiser. 



The agency, many times, is irrevocably committed to media 
and to suppliers of advertising materials for the payment of 
sums which will aggregate from one sixth to one third of the 
client’s annual advertising appropriation. In other words, the 
credit extended to a client by an agency will equal from two to 
four months’ billings. Manufacturers and distributors of cos- 
metics, pharmaceuticals, cigarettes and similar items frequently 
spend a large proportion of their total sales volume for adver- 
tising and it is possible for the agency’s commitments in such 
cases to equal as much as the total capital of the client. 

To approach the matter of credits from another angle, let us 
consider the credit risk in proportion to the profit received from 
handling an account; for after all, business risks to be sound 
must be in proportion to the possible gain. Advertising agencies 
these days do well to net from one and one-half to three percent 
of their total sales volume. From this, it will be seen that the 
agency’s profit from handling the account of a client spending 
$100,000 would average between $1,500 and $3,000 a year. When 
it is realized that the agency risks as much as $30,000 or $40,000 
to secure a net profit of perhaps $2,000, it will be seen that little 
further financial risk can be prudently accepted. 

The usual credit terms of an agency provide that the client 
must pay the agency a few days prior to the date on which the 
agency must pay the media. For all non-media items, usual terms 
provide for payment ten days from the date of the agency’s in- 
voice. Unless the financial position and integrity of the adver- 
tiser are beyond question, these usual terms cannot be granted 
because the possible gain just isn’t worth the risk. 

Of course, one of the first considerations in connection with 
the solicitation or handling of agency business is the question 
of the credit of the prospect or client. To determine the volume 
of credit to be allowed to a client, it is necessary to study each 
case individually. Unfortunately, there are no hard and fast 
rules that can be applied in order to measure a credit risk. 




A few generalities may be stated, however, to serve as guide- 
posts in this difficult matter of investigating the credit of pros- 
pects and clients for the purpose of determining whether a credit 
risk should be accepted: 

1. The client or prospect should have a credit rating which 
justifies the extension of the credit sought. For this rating, one 
refers to the commercial rating companies such as Dun & Brad- 

2. The prospect or client should willingly give factual infor- 
mation upon which credit is to be based. 

3. The client or prospect should have an undisputed record 
in connection with meeting its obligations and discounting its 

4. The agency should be convinced that the advertising cam- 
paign is in line with the advertiser’s ability to produce and 
finance. The amount of credit extended by the agency (the 
amount of the agency’s maximum commitment at any one time, 
plus the amount currently due for bills rendered) represents 
the credit risk. This should not exceed the largest line of credit 
granted to the client by other creditors. The advertiser’s finan- 
cial statement should clearly indicate his ability to pay adver- 
tising bills. That is, cash on hand at any one time should be 
sufficient to pay the agency’s invoices. 

5. When the agency has any question concerning the credit 
risk, it might be advisable for the agency first to determine the 
largest amount for which it is liable at any one time on account 
of purchases made for the advertiser. If a bank would not be 
willing to make an unsecured loan to the advertiser for this 
amount, it could be assumed that the credit risk is a bad one. 
The best rule for granting credit in the agency business is: If 
there is a question, the risk isn’t worth taking. 

* See Appendix, page 320 




There are many ways of reducing an agency’s credit risks. 
Some methods used to accomplish this are: 

/. Billing. Changing the agency’s terms so as to bill for all 
media in time to secure payment prior to the date on which 
the agency is finally committed to the purchase of the space. In 
the case of national magazine advertising, this would require 
that the advertiser pay the agency before the magazine’s can- 
cellation date. If the advertiser fails to make payment on such 
date, the agency could still cancel the advertising. In connection 
with newspaper advertising, this would require that the adver- 
tiser pay for each month’s advertising on the first day of the 
month. The amount to be paid would be based on the space 
ordered for the coming thirty-day period. It is more difficult for 
the agency to protect itself from credit loss in connection with 
radio time and talent. This would require an advance payment 
from the client. The same applies to outdoor advertising and 
advertising materials. 

2. Guarantee. Another method used for minimizing credit 
risks is for the agency to secure a guarantee where the client has 
a financial sponsor or parent company whose credit is unques- 
tionable. Occasionally, the media may be willing to accept a 
credit risk where the agency would not do so. In such cases, it is 
possible to arrange for the client to be responsible to the media, 
thereby relieving the agency of this liability. 

5. Insurance. Certain insurance companies have developed 
credit insurance policies to protect agencies from financial loss. 
For a description and discussion of advertising agency credit 
insurance, see Appendix, page 304. 

Credit insurance should be considered only as an additional 
safeguard, as a guide to the agency in connection with accept- 
ing credit risks and as an aid in the collection of accounts. A 
credit risk should not be accepted simply because the agency 
carries credit insurance to cover the risk. On the other hand, 
no agency can afford to accept a credit risk that a credit insur- 



ance company would not insure. The fact that a credit insurance 
company is willing to accept a credit risk may be taken as a 
favorable factor. It must be remembered that even with credit 
insurance, the agency could suffer substantial financial loss as 
the result of failure to collect from the advertiser. (See coinsur- 
ance, normal loss, collection charge and coverage features de- 
scribed in Appendix, page 304. 


Usual billing terms provide for payment within ten days 
from the date of the agency's invoice. Cash discounts allowed 
by media are passed on to the advertiser as an inducement for 
prompt payment. Agencies do not allow the same rate of cash 
discount as is allowed to them by the media. They pass along 
or allow the same amount of cash discount as they receive. This 
means that where a publication allows a two percent cash dis- 
count to the agency, the two percent applies to the agency’s cost 
which is eighty-five percent of the amount charged to the ad- 
vertiser (on the fifteen percent media) . On an item billed to a 
client for $100, the cash discount would be two percent of $85 
or $1.70. This cash discount of $1.70 is allowed the client if the 
agency’s bill is paid within ten days. 

Not all advertising media allow cash discounts. There is never 
any cash discount allowed on radio talent and seldom on art 
work or advertising materials. Nevertheless, these items are 
payable ten days from the date of the agency’s invoice. 

No agency can afford to do business with a client who does 
not pay his bills on time. Consider for a moment that the aver- 
age agency’s capital is not more than one tenth of its annual 
sales volume. From this capital, the agency must provide for 
fixtures and equipment, for the payment of salaries, services and 
overhead items and for materials purchased in connection with 
client's advertising campaigns. When an agency bills adver- 
tising materials only upon the completion of a production job, 
substantial funds may be tied up in unbilled advertising ma- 




No agency can afford to finance a client. It is a cardinal prin- 
ciple in the agency business that clients must pay their bills on 
time. Perhaps the reader will begin to wonder why such ex- 
treme caution in connection with credits and collections is 
urged. It is because the advertising agency is virtually the only 
professional business that becomes financially liable for huge 
commitments from which only the client can benefit. 

The agency that transacts an annual volume of a million 
dollars actually should be compared to the architect, accountant 
or lawyer who does an annual volume of $150,000. In one situa- 
tion in which a small agency was serving a very large manu- 
facturer, the agency’s bill covering one month’s advertising 
amounted to nearly $100,000. The funds were not received on 
the due date. The contact man urged that the advertiser not 
be contacted since its financial reputation was above question. 
The bill was two days past due, and the agency was dealing 
with an out-of-town client. A telegram was promptly dispatched, 
requesting immediate payment of the outstanding account. 
The telegram brought a telephone response and the invoice was 
paid, but it was discovered that the client was holding up the 
bill because of one or two small items that he could not check. 
Not only did the procedure result in the prompt payment of 
the invoice, but it straightened out the client’s auditing proced- 
ure and cleared the way for the prompt payment of all future 

No responsible client will object when the agency calls its 
attention to a past-due item. Good business dictates the prompt 
payment of obligations and good businessmen like to keep their 
record clean. They appreciate it when a creditor calls their at- 
tention to an oversight or faulty procedure that holds up 

Because agency invoices involve substantial sums, it becomes 
necessary to follow collections closely. Some systematic method 
for doing this should be used. One method is to have a three- 



by-five card prepared from each invoice sent to a client. These 
cards show the name of the client, the due date and amount 
of the invoice. They are filed in a simple box file in due-date 
order. As clients' checks are received, the cards representing the 
invoices which are covered by the remittance are taken from 
the file and destroyed. The remaining cards represent unpaid 
invoices. The treasurer or other executive of the agency needs 
only to refer to this file to determine what invoices are outstand- 
ing or past due. 

Agency's terms should provide that where one item on an 
invoice is questioned, the amount of that item should be de- 
ducted by the client and the balance of the invoice paid 

The responsibility of following collections should be dele- 
gated, without reservation, to one individual in each agency. 
Where that individual is not given sufficient 'authority to take 
the steps outlined in a collection policy, past-due accounts 
should be reported to whomever in the agency has the necessary 

In the event of a substantial delay without good cause, where 
payment cannot be secured by the agency even after communi- 
cating with the client, the agency is justified in cancelling future 
advertising space. When this is necessary, the agency should 
notify the client of its intention. After such notification, the 
agency should have no hesitation in going through with the can- 

Usually, magazines and other advertising media will protet t 
the agency in that they will refuse to accept advertising from an 
advertiser who has not paid past-due bills. But to secure such 
protection, it is necessary for the agency to report such past-due 
payments. In such a case, if the advertiser attempts to place ad- 
vertising space through another agency, it could be difficult for 
him to do so without paying his past-due obligations. 

7 8 

11. Budgets 


JLHE function of a budget or forecast is to present manage- 
ment with the estimated results from future operations. To be 
useful to management on a policy-making level, it is necessary 
for the budget to present factual information from which oper- 
ating policies can be determined. No budget, operating state- 
ment or balance sheet is of value unless it can be used by man- 
agement for the good of the business. 


An agency, to serve well, can afford to deliver only the service 
that each client pays for. In actual practice, many agency serv- 
ices are performed for the commission received from the sale 
of advertising space and materials. Agencies which have no 
method by which to determine the cost of serving each account 
are likely to “rob Peter to pay Paul.*' In such cases, the policy- 
making executives see only an operating statement which indi- 
cates that the agency made or lost money. Such operating state- 
ments do not show what it has cost to serve each account or what 
the income from each account has been. 

A budget which simply forecasts the total revenue by classes 
and the total costs and expenses by type is of little use in adver- 
tising agency management. Such a budget could be compared 
with the budget of a manufacturing concern that does not segre- 
gate the income from various products or the costs applying to 
the manufacture and sale of each product. There are those who 
suggest that the advertising agency budget be segregated so as 
to show departmental costs; however, departmental costs are of 
little importance compared with the cost of serving each client. 
In some businesses, the steps in the manufacturing processes 



can be segregated within the departments of the manufacturer's 
plant. Departmental costs become of value in such cases. In the 
advertising agency business, there is no standard for grouping 
costs within departments. 

For example, the copy cost could be large on one account; 
on another, the art cost could exceed copy cost; and on a third, 
contact cost could easily be the largest element. There is no 
scientific method for allocating gross revenue to the various 
departments within the agency, but it is relatively simple to 
determine each element of cost entering into serving one par- 
ticular client. 

It is impossible to prepare accurate budgets without first hav- 
ing established a cost-accounting system. No forecast of future 
operations can be accurately drawn without a knowledge of past 
operations in connection with similar types of transactions. 
Budgeting and cost accounting, therefore, are inseparable part- 
ners and must be used together. 

A properly established cost-accounting system will furnish 
periodic statements showing separately the results of the agency's 
operations with each client. Such cost-accounting statements 
will show each of the sources of income, including, for example, 
commission received from newspaper space, magazine and trade- 
paper space, outdoor advertising, radio time, radio talent, ad- 
vertising materials, service fees and miscellaneous items. The 
statement will show the various costs incurred in serving each 

These costs are broadly divided into direct and indirect costs. 
Included among the direct expenses are creative and other di- 
rect salaries. These salaries include the cost of the time devoted 
to the account by creative people and others who spend time 
directly on clients' accounts, performing such services as con- 
tacting, planning, copy preparation, art direction, research, 
media selection and buying, production and publicity. 

Other direct expenses comprise those expenses that are in- 
curred directly in connection with serving a particular client's 
account. They include such items as traveling, research, enter- 


taining and advertising materials purchased to serve a particular 
client which cannot be billed to the client. In this last category 
might appear such an item as resetting type because of an error 
made by the agency. 

Included among the indirect expenses are indirect salaries. 
These include salaries paid to agency employees who do not 
work directly on any one account. Work performed in the fol- 
lowing categories is generally included in this classification: 
stenography, typing, ordering, billing, accounting and admin- 
istrative work. Other indirect expenses include all of the ex- 
penses of the agency that are incurred in its general operation, 
but which are not specifically incurred in connection with ser- 
vicing particular clients. This classification includes such items 
as rent, light, local telephone, general travel, general entertain- 
ing, dues and subscriptions, stationery and supplies and the like. 

The proper cost-accounting system will enable the agency to 
segregate its costs and expenses by clients and to segregate the 
costs and expenses on each account in accordance with the pre- 
ceding formula. Because the advertising agency business lends 
itself particularly well to cost accounting, costs and expenses can 
be segregated properly with a minimum of effort, provided that 
the accounting and cost-accounting system is designed with this 
in mind. 

The form of the cost-accounting statements, to be of greatest 
use, must be in exactly the same form as the budget. There is no 
one ideal form. The type of statement to be used will depend 
somewhat on the requirements of the people who are going to 
work with the statements. The statements should be in such 
form that management can clearly understand the figures. The 
budget and the cost-accounting statements are intended to ac- 
complish two principal objectives: 

1. To show management how its policies are expected to 
work out. 

2. To indicate to management how well the organization is 
carrying out its policies. 



In other words, the budget is intended to show what will hap- 
pen if the organization does what management directs, and the 
cost-accounting statement is intended to show whether the or- 
ganization was able to do these things. 

No agency should attempt to prepare a budget or forecast 
until it has first established an adequate cost-accounting system. 
A forecast is not simply a schedule showing what business an 
agency can expect to do in the future; rather, it is a detailed 
report showing not only what business the agency is expected 
to do for a period of time, but showing as well the cost of trans- 
acting that business. 

The means for preparing an agency budget are well estab- 
lished. Following is an analysis of them. 


It is not difficult to forecast the advertising space and mate- 
rials that will be used during the budget period if each indi- 
vidual client is considered separately. Advertisers must deter- 
mine their advertising expenditures for a period well in advance 
so that the agency can plan and develop the advertising and 
reserve the advertising space. 

After a client's appropriations have been established, it is cus- 
tomary for agencies to plan the advertising campaign and then 
to allocate the advertising expenditure by determining the 
amount to be spent for each advertisement in each publication. 
These break-downs of advertisers' expenditures frequently take 
the form of schedules or estimates. Schedules or estimates may 
be formal documents submitted by the agency to the advertiser 
for his approval and signature. 

Where estimates or schedules are used, it is obvious that these 
should be used in establishing the forecast of the client's billing. 
Frequently, there are no schedules or estimates that can be used 
for establishing billing forecasts. Even where the formal esti- 
mate or schedule system is used, clients may have the habit of 
frequently revising schedules, or they may sign schedules cov- 



ering only certain parts of the advertising campaign, leaving 
other items open for future consideration. 

It is not infrequent for advertisers to change plans without 
much advance notice. The agency, the client, or both may un- 
expectedly consider the purchase of a radio show; or they may 
decide to market a new product; or they may alter advertising 
expenditures, depending on seasonable factors, competition, 
etc. The agency executive who is in contact with his client will 
always have a reasonably accurate knowledge of the client’s 
advertising plans for the coming few months, at least. 

The first step in budgeting sales is to prepare a separate sched- 
ule for each client, showing in detail the advertising space 
and materials which that client is expected to use for the budget 
period. This schedule should list the name of each advertising 
medium, the date of each advertisement and the billing price 
and cost of each advertisement. The schedule should contain an 
estimate of the advertising materials required in connection 
with each advertisement and a list of special services to be ren- 
dered that are to be billed to the client, including the estimated 
price and cost of each item. The schedule should be prepared to 
show the total billing and cost figures for each month in the 

In listing each item on the schedule, a notation should be 
made to indicate whether the item was scheduled on the basis 
of a signed estimate, on the basis of a contract already issued to 
the medium or on other information. These schedules are usu- 
ally prepared by contact men who refer to media recommenda- 
tions, estimates and other data. 

Properly completed billing schedules for each client will show 
the expected billings and costs by months and classification of 
media. In the larger agency, these individual client billing and 
cost schedules are reviewed by the administrative department. 
The accuracy of a billing forecast depends on who gathers the 
material and on the source of the figures. Obviously, such fig- 
ures as are based on signed estimates or completed contracts 
with media are reasonably accurate, subject only to cancella- 



tions caused by unexpected events. Those items which are esti- 
mated on the basis of a contact man’s guess cannot be so accurate. 
The degree of accuracy in such instances depends on the esti- 

To check the accuracy of the billing forecast, the agency ad- 
ministrative executive must familiarize himself with facts. This 
can often be done by an examination of past activities on each 
account and by conferences with contact men and heads of space 
and production departments. Billing estimates should be in 
such form as to permit revisions. Additional copies of estimates 
should be held for such purposes. Since budgets are usually pre- 
pared for periods upwards of a month or two, it is necessary to 
revise these estimates as clients change their advertising plans. 

See Figure 7 for suggested billing estimate forms. 


Direct-salary costs designate costs for the time devoted to 
clients’ accounts by people who work directly on them. Often 
many people work on one client’s advertising account. The 
number working on one account depends on the size and type 
of the account and the manner in which the agency is operated. 

It is common in large agencies to have a departmental organi- 
zation which includes the following departments: contact men, 
copy, media selection and buying, art, production, research, 
radio, accounting, billing, checking and administrative. Some 
of the larger agencies have found that the departmental set-up 
in itself does not provide the necessary concentration of indi- 
vidual effort on individual accounts. They have further sub- 
divided their activities by what is often called the “group sys- 
tem,” so that a certain group of people in each department 
works on one account, or on a series of accounts. 

Even where the group system is not well defined, agencies 
have found it necessary to assign the various elements of work 
on one account to individuals within departments. Where an 
agency has had past experience in handling an advertiser’s ac- 
count, the individuals working on that account have formed a 











to >• 

I I 

< LU 


Fig. 7. Billing Estimate. 


rather accurate idea of what service the account requires and 
how much time it will take them to perform that service. 

Where an agency has operated a cost-accounting system, the 
cost-accounting records will indicate who has devoted time to 
each account and the amount of time that has been required 
of each individual. Some agencies have gone further than just 
to record the amount of time required by each employee to 
serve a particular account. First, they have evaluated adver- 
tisements so as to put them into several classes; then, they have 
rated each class of advertisement. For example, they decide 
that a four-color full-page advertisement of a certain type falls 
into Class 1, which requires the greatest amount of time to de- 
velop; then other types of advertisements they rate as Class 2, 
Class 3, Class 4, etc., with the rating depending on the skill 
required and time involved to develop the advertising. The 
same types of classifications have been established by some 
agencies for radio programs and outdoor displays. While this 
is an organized method for estimating the time required to 
prepare an advertisement, it is usually unnecessary to go into 
such detail to prepare an estimate of the direct cost of serving 
a client’s account. 

To prepare the estimate of the direct-salary cost involved in 
servicing each client’s account, the first step is the preparation 
of a separate schedule for each client. The name of each em- 
ployee who works on the account is listed. Each employee is then 
requested to furnish an estimate of the amount of time that he 
will spend on the account for each month in the budget period. 
At the time of requesting this information, it may be helpful 
to give each employee a statement showing the time he devoted 
to each particular account during a similar prior period. In 
addition, it may be helpful to furnish each such employee with 
a schedule showing the advertising space to be used for the 
client during the budget period. In large agencies where the 
departmental or departmental and group system is used, each 
employee’s time estimates should be submitted to the group 
head and to the department head for review. 



Hrs.lAmt. Hrs. I Amt. Hrs. I Amt. Hrs.lAmb. Hrs. |Amt Hrs. |Amt. Hrs. I Ai 

Fig. 8. Time Estimate. 


A simple device for obtaining time estimates is to furnish 
each employee with a time sheet similar to the one shown as 
Figure 8. On this time sheet the names of the various accounts 
handled are listed on the left-hand margin of the sheet from top 
to bottom. The months in the budget period are represented 
by columns running vertically and covering the space from 
the left- to the right-hand side of the sheet. The individual em- 
ployee notes the amount of time he estimates will be required 
of him during each month in the budget period opposite each 
account he is to work on. By adding each column, the total 
time to be devoted by the individual employee for each month 
is secured. Sometimes, in order to assist the employee, a second 
time sheet exactly like the one described is furnished; but, in 
this case, the cost-accounting department has inserted figures to 
indicate the time devoted by the individual to each account 
during the prior year. This second time she£t showing the actual 
time devoted to the accounts by the employee for the prior 
year is used as a guide to estimate the time required during 
the budget period. 

When individual employees have made their estimates show- 
ing the time required of them in connection with each account 
for the budget period, these estimates, like billing estimates, are 
reviewed by an agency administrative executive. Such a review 
may require conferences with individual employees, depart- 
ment heads and contact men. When the time estimates have 
been reviewed, the estimated time must be converted into dol- 
lars of cost. The best procedure for converting time estimates 
to cost estimates involves the accumulation first of the time 
estimates for each employee. After the time estimates have been 
refined so far as possible, the number of working hours ac- 
counted for is divided into the compensation of the employee. 
This produces an hourly rate. For example, if the budget period 
is one month, and an individual employee receives one thou- 
sand dollars compensation, and the total hours he has estimated 
he will spend on all accounts for the period is one hundred, 
then obviously his rate is ten dollars per hour. Having estab- 


lished the hourly rate for each employee, the time estimates are 
converted to cost estimates. In making this conversion, no al- 
lowance is to be made for lost or idle time. By the method 
described, each account is charged proportionately for each em- 
ployee's idle time. 


Direct expenses consist of those items of expense that are in- 
curred specifically through handling a client’s account. Past 
experience is usually a valuable guide in determining what di- 
rect expenses may be incurred in the future. The proper cost- 
accounting system will provide management with the amount of 
the direct expenses that have been incurred in serving each ac- 
count during prior periods. It will also give the nature and 
detail of each item. An examination of these items will serve 
management well and, as stated, will be of great assistance in 
forecasting future costs. 

In larger agencies where contact men are more or less re- 
sponsible for incurring expenditures for such items as traveling 
and entertaining, these men should be held responsible for 
budgeting anticipated direct expenses and for keeping actual 
costs in line with the budgets. Adhering to this principle, to 
secure forecasts of such direct expenses it is advisable to take 
contact men into consideration. 

To estimate these expenses for the budget period in a small 
agency, where one of the principals contacts each account, it is 
necessary only to examine past direct expenses and to speculate 
on what items of expense may be recurring. Such things as client 
sales conventions, new types of advertising campaigns and the 
distance of the client’s office from the agency’s place of business 
must be taken into consideration. 

Agencies operate differently: Some follow a policy of liberal 
entertaining and traveling; others restrict these expenses. Much, 
of course, is dependent on the type of account and the type of 
agency. In the larger agency, to secure accurate estimates, it is 



best to apprise the contact man on each account of figures 
and details of direct expenses for past periods. With the past 
experience as a guide, and the contact man’s knowledge of 
present and future operations, he should be able to furnish 
management with a reliable estimate of future costs. These esti- 
mates, like billing and time estimates, are to be reviewed by an 
administrative executive and then incorporated in the budget. 
No specific form need be used to secure the figures from the 
various contact men. 


Indirect expenses include (a) salaries of people who do not 
work directly on clients’ advertising and (b) all other expenses 
except those that are incurred specifically because of handling 
one or more clients’ accounts. Both indirect salaries and other 
indirect expenses are sometimes referred to as overhead ex- 

It is necessary to do some research work within the agency 
to determine what part of indirect expenses should be allocated 
to each client’s account. The first step in making the allocation 
of indirect expenses is to prepare a schedule to determine the 
total cost within each classification of work, such as bookkeep- 
ing department billing clerks, stenographers, file clerks, pro- 
duction department employees, etc. After the total salary costs 
in each classification have been determined, it is necessary to 
find a way to allocate these costs to the several clients served. 

No one method of doing this may be applied to all classifica- 
tions. For example, it may be practical to allocate billing clerks’ 
time on the basis of the number of items billed. It may be pos- 
sible to allocate production department employees’ time on the 
basis of the number of items purchased. Each classification re- 
quires a separate investigation. The following are some of the 
methods that have been successfully used to determine how 
much indirect-expense cost should be allocated to each client: 

i. Income Method. When allocating according to the income 
method, the ratio of income from each client to total income of 

9 ° 


the agency is established, and then the allocation is made by 
using the established ratio. 

Example: If the commission and fee income of the agency is 
$100,000 and the income received from one particular client is 
$5,000, then the ratio of the income from the one client to total 
income of the agency is five percent. When this method is used, 
five percent of the item to be allocated is charged to the particu- 
lar account. 

2 . Direct-Salary Method. Costs and expenses are allocated on 
the basis of the direct time devoted to accounts, on the theory 
that indirect salaries and indirect expenses pertaining to an ac- 
count are proportionate to the direct time devoted to the 
account. To allocate on this method, it is first necessary to deter- 
mine the total direct time charged to all accounts. Next, the 
direct time applicable to each separate account is determined. 
Then the percentage of the total direct time that was used on 
each account is calculated. This percentage when established is 
used for allocating expenses. 

Example: Total direct time charged to all accounts, one thou- 
sand hours; time devoted to Account A, one hundred hours; the 
ratio is ten percent. Then ten percent of the item to be allocated 
is charged Client A. 

j. Insertion-Order Basis. Certain indirect salaries and indirect 
expenses in an advertising agency may be allocated on the basis 
of the number of insertion orders issued to magazines, news- 
papers, trade papers, etc. This method is used in connection 
with those classifications of indirect salaries and indirect ex- 
penses where the work performed or the expense incurred re- 
sults from the issuance of orders. This would be true in the 
checking department, the forwarding department (departments 
in which orders are issued and released), space-billing depart- 
ment, etc. 

To make an allocation under this method, first the total num- 
ber of insertion orders issued by the agency is established. Next, 
the number of insertion orders issued on account of each client 
is established. The percentage of orders issued for each client 

9 1 


to total orders issued by the agency is established. An allocation 
is made on this basis. 

Example: One thousand insertion orders issued; five hundred 
orders issued in connection with Client A. The allocation is 
made on the basis of fifty percent to Client A. 

4. Purchase-Order Method . Certain work performed in agen- 
cies results from the issuance of purchase orders, particularly 
those issued in connection with the purchase of advertising 
materials. Indirect employees whose time could be allocated on 
the basis of the purchases of advertising materials might include 
those working in the production department and might also 
include those employees whose work consists of billing and 
accounting for advertising materials. This type of allocation is 
made in the same way that the insertion-order allocation is 
made, but the number of purchase orders is used in place of the 
number of insertion orders. 

5. Contract Basis . A few indirect employees and some indirect 
expenses may be allocated on the basis of contracts issued to 
radio stations, magazines, newspapers, etc. The type of employee 
whose time could be allocated on this basis would include em- 
ployees in the media-selection and media-buying departments. 
It would also include the time of clerks who devote their time 
to the preparation of space contracts. The allocation is made 
in the same manner that the insertion-order allocation is made 
except, of course, the number of contracts issued is used in 
place of the number of insertion orders. 

These are some of the methods that have been successfully 
used to allocate indirect salaries and indirect expenses. Other 
methods may be found for allocating particular types of salaries 
and expense items. It is important to note that no one method 
of allocation can be applied to all items. A study must be made 
to determine the basis for allocating each class of item. When 
the methods to be used have been established, proration should 
be based on these methods, and the methods used should not be 
disturbed for a period of at least six months. After this, the al- 
locating methods should be restudied to determine whether they 


are still correct or if there is room for refinement or improve- 

A work sheet should be prepared to list each classification of 
indirect salaries and indirect expenses together with an ex- 
planation of how the allocation of the item is to be made to 
the various client’s accounts. This work sheet will serve as a 
basis for making the allocation from month to month as the 
budget is revised. When the work sheet is completed, two sched- 
ules should be prepared: A schedule listing the indirect-salary 
classifications and a second schedule listing the other indirect 
expenses by class. 

The schedule of indirect salaries should contain headings for 
each classification. Under each heading, the name of each em- 
ployee falling in the classification should be listed together 
with the employee’s salary for the period. Each classification 
total should then be allocated to the various clients’ accounts. 
A fourteen-column work sheet is suggested. The classification 
headings and the names of the employees may be listed on the 
left-hand side of this sheet with each individual’s salary listed 
in a column next to his name. The remainder of the columns 
may be used for distributing the salaries to the several accounts. 

The same type of work sheet may be used as a schedule of 
other indirect expenses or overhead. In this case, the classifica- 
tions of expense are listed on the left-hand side of the sheet from 
top to bottom, the estimated amount of expense is listed in the 
column directly to the right of the name of the classification of 
expenses, and the remaining columns from left to right are used 
for distributing each class of expense to the several clients’ ac- 


The gross profit is the commissions and fees less the direct 
costs. Gross profit is the most significant figure in the advertis- 
ing agency budget or cost-accounting statement. It is a true fig- 
ure. The income received from an account must be sufficient to 
produce a gross profit that is large enough to allow for the pay- 



ment of indirect costs (indirect salaries and overhead expenses) 
and still leave a reasonable margin of profit. 

It is not unusual for an agency upon an analysis of budgets 
and cost-accounting statements to find that the revenue from 
one or several accounts is insufficient even to pay for the direct 
salary costs. When this condition occurs, the gross-profit figure 
is a negative amount, and this is a clear indication that the ac- 
count is unprofitable. 

The gross-profit margin must be sufficient to provide for in- 
direct costs. It is important to know not only what the gross 
profit is on each account, but also what the rate of gross profit 
should be on the average. If the ratio of the total of the two 
items (indirect expenses and profit) to total commissions and 
fees earned is determined, this ratio would represent the aver- 
age rate of gross profit required. 


T otal commissions and fees $ 1 00,000.00 

Profit requirement 

Indirect expenses (salaries and overhead) 

20.000. 00 

25.000. 00 

| 45,000.00 

Forty-five thousand dollars is forty-five percent of the total com- 
missions ($100,000) . Therefore, the average gross-profit re- 
quirement in the example cited is forty-five percent. To secure 
the figures from which to determine the average rate of gross- 
profit requirement, two schedules should be prepared. One is 
a schedule of indirect-salary costs and the other a schedule of 
the other indirect expenses. 

The schedule of indirect-salary costs consists of a list of all of 
the employees who do not keep time reports and who do not 
work specifically in connection with serving one or several ac- 
counts. The schedule consists merely of a list of these employees 
and their salaries. The total of the schedule represents the total 
salaries paid to employees who fall under the classification “in- 
direct salaries." 



The schedule of other indirect expenses or overhead can be 
prepared merely by listing the classifications of expense with the 
estimated expenditure that will be made for such class of ex- 
pense for the year or budget period. A total taken from this 
schedule represents the agency’s indirect expenses or overhead 
for the period. 

After the two schedules have been prepared, the totals that 
appear on these schedules may be compared with the total ex- 
pected commissions and fees of the agency as previously estab- 
lished through the preparation of schedules of billings, media 
costs and commissions. Thus a ratio is determined. 

When the ratio, or percentage, of the indirect costs to income 
has been determined, such a ratio provides management with 
a means of measuring the adequacy of the gross-profit figure as 
shown by the individual client operating forecasts. 

Because the accounts served by an agency differ widely, it may 
be possible that one account which produces a relatively small 
gross profit could still be a profitable account; whereas another 
that produces a relatively large gross profit could be unprofit- 
able. This emphasizes the fact that in addition to the gross-profit 
factor, it is necessary to determine what indirect costs are in- 
curred in connection with handling each account. 

Example: An advertiser who uses four-color, full-page adver- 
tisements in national magazines presents quite a different prob- 
lem for the agency from the advertiser who uses small space in 
hundreds or thousands of weekly newspapers. The magazine 
account requires the issuance of only a few contracts, a few in- 
sertion orders, the preparation of several invoices and the pay- 
ment of several bills to magazines. Checking the quantity and 
quality of the space used in the advertisements is a relatively 
simple task. On the other hand, the mechanics involved in the 
newspaper account require the completion of a substantial 
amount of detail work. Where newspaper advertisements ap- 
pear weekly, it is sometimes necessary to issue separate insertion 
orders for each advertisement. For an advertiser who uses sev- 
eral hundred daily or weekly newspapers, it is necessary first to 



issue several hundred contracts, then as many as four times that 
number of insertion orders each month. Each advertisement 
must be checked and measured. Each advertisement must be 
billed and paid for. Because newspaper advertisements gen- 
erally appear in less space than that ordered, it is necessary to 
go into quite some detail in order to bill the client properly. 

These two examples are given merely to show that there can 
be a good deal more indirect cost in handling one account than 
in handling another. The very terms “direct cost” and “direct 
salary” indicate that these classifications of cost, as they apply 
to a particular account, can be determined with accuracy; but 
“indirect costs” do not lend themselves to so accurate or specific 
an allocation. It is not an easy matter to determine what part of 
a stenographer’s time is devoted to work in connection with the 
handling of one account, and it is not simple to determine what 
part of the rent expense is incurred because the agency serves a 
particular advertiser. 


The procedure for budgeting each item of income, cost and 
expense has been explained. In discussing billings, media costs, 
direct salaries and direct expenses, it has been suggested that 
separate schedules be prepared for each client’s account. It is 
now necessary to consolidate the figures in order to prepare a 
budget for the agency as a whole. The individual schedules 
showing the billings and media costs by clients may be consoli- 
dated by the preparation of a schedule listing the names of the 
several clients on the left-hand side of the sheet, the total billings 
in a column directly to the right of the client’s name, the total 
media costs in the next column and the resulting commissions 
in the third column. Service fees may be shown in the column to 
the right of the commissions with the total commission and fee 
income being developed by adding the sum of the commissions 
and the service fees for each account. 

* A master schedule of direct salaries is now prepared by list- 
ing the names of all the employees in this classification with their 


total salaries. The schedules of direct salaries which were pre- 
pared to show the amount of direct salaries applying to each 
client's account are to be summarized to produce an over-all or 
master schedule. 

The schedules of direct expenses for each individual account 
are consolidated by listing clients' accounts on the left side of 
a work sheet and providing a column for each class of expense. 
The total amount of expense in each class applying to each 
client is then inserted on the work sheet. This develops the total 
direct expenses for each client and the total of all the direct ex- 
penses for the agency by class of expense. These totals by class of 
direct expense for the agency as a whole should be compared 
with the expenses in each classification for a similar prior period. 
The budget for the agency as a whole is now prepared by refer- 
ence to the schedules which have been described. 

The advertising agency business may be less stable than some 
other types of business. The addition or loss of one account may 
have an important effect on the operations. Because the total 
volume of transactions may be affected by events beyond the 
control of the agency, it may be impossible to prepare an accu- 
rate budget for a period of time in excess of a few months. The 
first budget should be prepared for a period of one year; this 
budget should then be subdivided into periods of three months 
each so that, when completed, there will actually be five budgets 
—one for the entire year and a separate budget for each three- 
month period. At the end of the first three-month period, the 
budgets for the remaining three periods should be reviewed and 
an additional budget should be prepared for the three months 
following the year-period of the original budget. 

By this method, the agency always has a budget for a period 
of one full year, because as each three-month budget period has 
been completed, an additional budget for three months is pre- 
pared. A quarterly review of budgets insures reasonably accu- 
rate budgeting for the immediate ensuing three-month period. 
It provides a yearly budget from which management can make 
decisions with a knowledge of expected operations. 



The quarterly review of budgets may seem like a big job, but 
it is not nearly so difficult as it would first appear. A review of 
each of the schedules is all that is required. An examination of 
the direct-salary schedule for each client together with a knowl- 
edge of direct-salary costs for the past three-month period, and 
other information relative to changes in the client’s advertising 
plans, will indicate what corrections are required. An examina- 
tion of indirect-salary costs and indirect expenses for the past 
three months will indicate whether these expenses as budgeted 
are accurate in total, or whether revision is required. The cost- 
accounting reports for the past three months will indicate 
whether the allocation of the expenses in the budget is in line 
with the actual costs. 


Part II 

konnting Procedures 

Preface to Part II 


J.HE purpose of recording the transactions of a business may 
be partitioned as follows: 

1 . To collect and compile facts and statistics which will clear- 
ly show the results of management's policies. 

2. To compile a historic account of the transactions of the 
business for the purpose of supplying future information. 

3. To record transactions chronologically and systematically 
for the purpose of billing customers and paying suppliers. 

Just as the nature of businesses varies, so do their accounting 
and bookkeeping requirements. The operations of a grocery 
store are quite different from those conducted in a law office 
and one would expect that these differences would make it de- 
sirable and perhaps necessary for different bookkeeping methods 
to be used. While the profession of accounting is relatively new, 
much has been done to organize, perfect and simplify the 
methods for recording the transactions of a business. 

The advertising agency business is a different kind of business 
from any other and just as special methods have been developed 
for properly and efficiently recording the transactions of other 
specialized businesses, particular and individual accounting 
methods have been developed for recording the transactions of 
an advertising agency business. 

Before detailed bookkeeping and accounting methods can be 
adequately developed, it is necessary to determine what end 
results are sought. In other words, what facts and figures does 
an advertising executive require to determine the results from 
the policies the agency has followed? To develop an accounting 
system for any business, and the agency is no exception, it is 



first necessary to lay out the statements that management can 
best use. Then, working backwards from these statements, it is 
possible to develop an accounting system through the operation 
of which the statements will be secured. 

One of the most important principles in the financial man- 
agement of an advertising agency is the fact that all advertising 
space and materials which the agency purchases are specifically 
bought in behalf of a client or clients and that each item so 
purchased should be billed. Vice versa, each item billed to a 
client must be paid for, having been purchased from a sup- 

In other businesses, this principle is only partly true. Of 
course, it may be argued that everything that a business buys is 
for the purpose of manufacturing, distributing or selling articles 
or service, but in other businesses, the items purchased cannot 
always be traced directly to their use in the final product as de- 
livered to a customer. Certainly the automobile manufacturer 
buys steel and paint, but those raw materials are purchased only 
for the manufacture of products and not necessarily for the 
manufacture of products sold to a specific customer. Even in 
the jobbing business, finished products may be purchased 
but the jobber at the time of the purchase has not always, and 
in fact usually does not have, the finished goods allocated to spe- 
cific customers at the time of the purchase. 

In the properly managed advertising agency, no advertising 
space or advertising materials are purchased until they are 
needed in connection with a specific client’s advertising cam- 
paign. If a comparison can be made with any other business, it 
could best be made to the business of the tailor to the trade who 
takes his customer’s measure, selects a style, develops a pattern, 
decides on a particular cloth and buys the cloth specifically to 
manufacture the particular garment for the particular customer. 
Yes, the advertising agency business is a made-to-measure busi- 
ness where each job is an individual job tailored to meet the 
specific requirements of the customer. 



Since the advertising agency must transact $6.67 in business 
to receive $1.00 in commission, a large number of transactions 
must be handled in even a moderate-sized agency.* 

To record the transactions in the customary Purchase Jour- 
nals, Accounts Receivable and Accounts Payable Ledgers, fol- 
lowing orthodox accounting methods used by manufacturing 
and jobbing businesses requires an enormous amount of cleri- 
cal work that is not necessary. The methods that are described 
here make use of the peculiarities of the advertising business to 
simplify the recording methods. For example, since every media 
purchase is made for a specific client, the total cost of the 
items billed must be paid and nothing except these items 
should be paid. Therefore, the payments that the agency makes 
can be controlled by checking them against the cost of the 
items billed. 

It is a principle in agency finance that clients must discount 
the agency's invoices. For this reason, no detailed Accounts Re- 
ceivable Ledger need be kept and this cumbersome set of rec- 
ords is therefore eliminated. Still, a means is provided to check 
the payments received against the amounts due. These prin- 
ciples and others pccidiar to the agency business are opportu- 
nities for developing methods for control and for simplification, 
and these have been used wherever possible for that purpose. 

When the agency issues an order for advertising space, that 
space is to be resold to a definite client. For this reason, the order 
form itself can be used as a basis for the proper billing and pay- 
ing of the item. Such a procedure could not be used in a manu- 
facturing concern where materials are bought for stock. 

One of the duties of the public accountant is to survey the 
methods of internal control and the system of accounting. If 
the methods and system are truly adequate, much of the audit- 
ing work can be eliminated. The valuable services of the public 
accountant can then be reserved for the more important work 

# Agencies receive commissions at the rate of fifteen percent. Fifteen per- 
cent of $6.67 is $1.00. 


of interpreting the figures, and for developing and analyzing 
financial policies and operating methods. 

It is not possible here to explain and exhibit every detail in an 
accounting system, but a complete outline of the methods and 
principles is given. 


1. Cost Accounting 


J.HE agency primarily serves the advertiser by conceiving, de- 
veloping and placing advertising, but the publisher pays the 
advertising agency for its work. It is true that the advertising 
agency is of great benefit to the publication, the radio station 
and the outdoor plant because, if it were not for the agency, pub- 
lishers might have the tremendous job of trying to conceive and 
develop advertising campaigns. It would be difficult to correlate 
the advertising appearing in the various media. 

If there were no advertising agencies, publications would 
have to collect from thousands of advertisers instead of from 
hundreds of agencies. Advertisers would have to be educated 
concerning the various technical requirements of the media. 
Yes, the advertising agency is of tremendous service to the pub- 
lisher, and the publisher can well afford to pay for this service, 
not the least of which is the policing of advertising messages, 
for the agency has a responsibility for the kind of message it 

The selling price of most services and products is in the final 
analysis based on the cost of producing them. If an advertising 
agency is to stay in business, it must make a profit from its opera- 
tions. To do this, it must measure costs against selling prices. The 
selling price of the agency's service is represented by the com- 
mission received from publications and other media, plus serv- 
ice fees and special charges collected from clients. The cost of 
the service includes the salaries of agency employees and all 
other expenses incurred in the operation of the business. The 
total commissions and fees received by an agency, less the total 
salaries and expenses paid, produce a figure that represents the 
profit from operations. To be sure, this one figure (net profit) 



is the final result of all of the transactions that have been per- 
formed, but the prudent and progressive executive needs more 
information than this. He wants to know which operations were 
profitable and which were not, and why. Consequently, it is 
necessary to find a method of presenting facts so that they will 
express the result of management’s policies and methods. 

In a manufacturing business, it is common practice today to 
keep records that will show the cost of performing each impor- 
tant function in the business. The giant enterprises of the coun- 
try could never have been built without such factual informa- 
tion from which management could determine the wisdom and 
profitableness of what they had done. In the agency business, 
service is rendered to clients and income is received as the re- 
sult of that service. The way in which one account is served de- 
termines the profitableness of that operation. For this reason, it 
is of prime importance for the agency's management to know 
the income and costs that result from serving each client. 

More than one type of service is performed for a client. 
In the well-organized advertising agency, budgets are prepared 
to show the anticipated costs of the agency's operations segre- 
gated by clients' accounts handled and types of services per- 
formed for each. These budgets express management's policies 
and enable the agency to plan for an operation that will pro- 
duce a reasonable profit. The cost-accounting records of an 
agency should show the result of carrying out the policies and 
methods expressed in the budget. 

It is necessary to segregate the income and costs so that each 
item can be compared with the budget. Before designing a cost- 
accounting system or, for that matter, any accounting system, 
it is necessary to determine exactly what end result is sought— 
what kind of cost-accounting statements can the management 
use best? To some extent, this depends on the previous experi- 
ence of the people in the agency that are going to work with the 
figures. No one cost-accounting report could serve for all 

The general accounting records described here provide for 


the accumulation of all cost-accounting information with the 
exception of the allocation of salary costs, which are also dis- 
cussed in this chapter. The sources from which the cost-account- 
ing information is secured are: 

1. Each client's sales and costs of sales are secured from the 
Sales and Cost Journal where a separate page is used for 
recording each client’s transactions. 

2. The commissions and fees are secured by subtracting the 
costs from the billings. 

3. Direct expenses: 

a. Salary costs applicable to each client’s account are se- 
cured from Time Reports. 

b. Other direct expenses applying to each client’s ac- 
count are secured from the Expense Voucher Register. 

4. Indirect expenses are allocated to clients’ accounts by 
methods described in this chapter. 


The cost-accounting statements illustrated in this chapter are 
intended as guides. They show the general formats of reports 
that have been successfully used by modern advertising agencies. 

The individual client operating statement shown in Figure 9 
is a statement form on which the agency operations with one 
client are summarized.* 

The amount of billings, costs and commissions for each type 
of advertising medium is shown, and the total of each class of 
direct expense is recorded. The gross profit from the operations 
is the difference between the commissions and fees on the one 
hand, and the direct expense on the other. This is the most sig- 
nificant figure on the statement form and will be discussed 
further. Next, the statement shows the share of the general and 

# A separate sheet is to be used for each client of the agency except where 
an agency has large numbers of very small clients. In such cases, the opera- 
tions of several clients are consolidated and shown on one individual client 
operating statement. The consolidation, of course, must be made on some 
logical basis so that the result will be meaningful. 



administrative expense prorated to the client which, when de- 
ducted from the gross profit, produces the net profit resulting 
from the transactions with the particular client. 

The figures shown on the individual client operating state- 
ment include the actual figures resulting from the operations 
and the budget figures. The figures are shown for the current 
month and for the cumulative period ended on the last day of 
the current month. This individual client operating statement 
gives the agency’s management a clear and concise picture of 
what has happened as the result of doing business with each 
of the agency's clients. 

The over-all operating or profit-and-loss statement for the 
agency as a whole shows what has happened, and the individual 
client operating statement shows why it has happened. 

Since the individual client operating statement summarizes 
the result of the transactions with each client, it is necessary to 
support the statement with more detailed figures to show the 
content of the summarized figures. The media billings and costs 
are self-explanatory and generally need no further analysis; 
however, when the actual figures for the period are at consider- 
able variance with the budget or forecast, the detail of the actual 
figures can be secured by an examination of the Sales and Cost 
Journal. A separate page in the Sales and Cost Journal records 
the billings and costs from each client's business. The sheets 
contain separate columns for each medium so that the total 
billings or costs for any particular medium can be analyzed 
quickly by reference to the Sales and Cost Journal. 


The direct expenses include two classifications: salaries and 
expenses. The individual client operating statement shows the 
total cost of the time of each class of employee (executives, 
contact men, secretaries, copy, art, production, media selection, 
radio and other direct salaries). To secure these figures, it is 
necessary to know how much of each employee’s time was 
devoted to each client's work. No estimate allocating time be- 



tween the various accounts served is reliable; and unless reliable 
figures are developed, the whole purpose of cost accounting 

It is necessary for each creative employee in an agency to 
keep reasonably accurate time records, so that an accurate allo- 
cation of time costs can be made. It is not practical for every 
employee of the agency to keep a time record to show how many 
hours were devoted daily to each client. Some employees per- 
form tasks that cannot be directly attributed to any one client's 
business. Others devote a few minutes at a time to each of sev- 
eral client’s affairs. 

A cost-accounting system should not be so burdensome that 
it consumes substantial amounts of time of valuable employees. 
For this reason, it is not desirable for an employee who does 
not devote at least a half-hour at a time to a client’s account to 
keep time records. 

Employees who can keep reasonably accurate time records 
include contact men, research employees, copywriters, radio 
continuity writers, radio script writers, art directors and artists. 
Employees who may or may not be able to keep accurate time 
records without excessive effort include production-department 
employees, space buyers and checking-department employees. 

Time records may be kept either on a daily, weekly or semi- 
monthly basis. The shorter the interval, the more accurate the 
record is likely to be; for when weekly or semimonthly record- 
ing forms are used, the employee is likely to wait until the last 
day of the period before he fills out the record. The semimonthly 
form is usually the most convenient for accumulating the hours 
devoted to each client’s account. If a daily or weekly form is 
used, it is suggested that the daily or weekly time reports be 
summarized onto a monthly schedule similar in form to the 
semimonthly time report shown in Figure 10. 

This semimonthly time report, it will be noted, contains 
clients’ names from top to bottom along the left-hand margin 
of the sheet. It provides columns for each day in the semimonth- 
ly period. Where this form is used, the names of all the clients 
1 10 

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Fig. io. Semimonthly Time Report. 


of the agency are mimeographed and the forms are distributed 
to all agency employees who keep these time records. At the end 
of each day, the employee records the amount of time devoted 
to each client's account. 

A daily allocation in hours and half-hours is thought to pro- 
duce sufficiently accurate time records. For the purpose of dis- 
cussing the recording of agency employees* time and the allo- 
cating of this time to the various accounts served, employees are 
first divided into two classes called direct and indirect. Direct 
employees consist of those who work directly on clients* ac- 
counts. Indirect employees are those whose time only indirectly 
benefits the agency’s clients. People in this latter class include 
bookkeepers and clerks, stenographers, receptionists, sometimes 
production employees, space buyers, etc. 

Usually the people in the first class keep time records allocat- 
ing their time to the several accounts served, while the people 
in the second class usually do not. Direct employees sometimes 
devote part of their time to administrative work or to other 
duties that do not directly concern a particular client’s business. 
In reporting the time devoted during the day, two methods are 

One method is to record only the hours devoted to clients* 
accounts, making no entry on the time sheet for the time de- 
voted to work of a general or indirect character. When this 
method is followed, the total time reported by the employee, 
divided into the employee’s compensation, produces a cost rate 
per hour. The costs applying to each client’s account are then 
computed by multiplying the hourly cost rate by the number 
of hours reported as having been spent on each client’s account. 

Since under this method the individuals make no report on 
administrative or general time, the only time reported is that 
devoted directly to clients’ business. By charging each client on 
this basis, the cost of unallocated time is automatically absorbed 
by charges to clients, the absorption being proportionate to the 
portion of time devoted to each client. 



Example: If an employee reports one hundred hours for a 
monthly period divided as follows: 

Client A 40 

B 50 

C 10 

and if the employee's monthly salary is $1,000, the hourly rate 
would be $10. Client A would be charged with $400, client B 
with $500 and client C with $100. Since the total of these allo- 
cated costs equals the employee's compensation, the time that 
the employee devoted to administrative or other classifications 
of work has automatically been allocated to clients in the pro- 
ration shown. 

The other method used is to provide for showing on the time 
report the time devoted to indirect work. When this is done, 
the employee indicates the type of work performed and notes 
the number of hours devoted to each class of work such as ad- 
ministrative, accounting, sales promotion. When an individ- 
ual’s time reports include time devoted to general classifications 
of work not directly involving clients, the salary costs of the in- 
dividual are prorated both to each client and to other classifica- 
tions. The costs in the other classifications are charged to over- 
head and the overhead expenses are then prorated to the clients' 
accounts as described later. 

Agency employees who have not been in the habit of keeping 
time records usually are reluctant to do so, feeling that they 
should not be subject to this menial work or to such detailed 
scrutiny of their efforts. In this connection, it is interesting to 
note that physicians, surgeons, dentists, attorneys, architects and 
accountants keep accurate records of the time devoted and serv- 
ices rendered to each client. Agency employees will find that the 
keeping of time records is of great help in eliminating waste and 
inefficiency. Time records are essential to the success of any ad- 
vertising agency cost-accounting system. To keep these records 
requires only a few minutes a day on the part of each employee. 
The high-priced executive sometimes can assign this duty to his 

u 3 


secretary, but in any event, the recording of time should be 


On the individual client operating statement, the total of 
each class of direct salaries is shown as it applies to each client’s 
account. Obviously, if the cost of a particular class of direct sal- 
aries greatly exceeds the budgeted cost, management will want 
to know why. For this and other reasons, it is necessary that the 
total of each salary classification be broken down to show the 
items making up the total. A separate schedule supporting 
the individual client operating statement is used for this pur- 
pose; it is called ‘'Schedule of Direct Salaries.” (See Figure 1 1.) 

This schedule shows the cost of each employee’s salary that 
applies to the particular account. The items are arranged so as 
to group employees by classes of work. This grouping auto- 
matically provides for securing the total cost of each class of 
direct salaries, which total is shown on the individual client 
operating statement. The Schedule of Direct Salaries includes 
both the actual salary costs as they apply to each client, and the 
budgeted cost. 

For this reason, the schedule form provides columns for re- 
porting the current month’s costs, the budgeted amount for the 
current month, the year-to-date actual cost and the budgeted 
amount for the year to date. The cost figures shown on the 
Schedule of Direct Salaries are the costs computed on the basis 
of the time devoted to each account as they are found from an 
examination of time records. 


The individual client operating statement shows the total of 
each class of direct expenses incurred in handling the client’s 
account. When the actual figures vary in any important degree 
from the anticipated costs as shown by the budget figures, alert 
management will want to know the reason for the difference. 

11 5 

Fig. i 1 . Schedule of Direct Salaries. 


The cost-accounting system that is described here has been de- 
veloped so that all needed figures can be secured with a mini- 
mum of effort. 

The agency’s expenses are recorded in a voucher register 
which is described in the chapter '‘General Books and Chart of 

The Expense Voucher Register provides for recording ex- 
penses in such a manner that those items incurred directly be- 
cause of one client’s account are segregated. A recap of these 
items provides the detailed information for preparing the sched- 
ule of direct expenses. This schedule may include as much de- 
tail as management requires. Usually, it is set up in the manner 
shown in Figure 12, which provides for a heading covering each 
classification of expense, followed by a listing of the important 
items of expense incurred during the period, with the total of 
the expenses in each class. This total agrees with the amount 
reported for the item on the individual client operating state- 
ment. Where a classification of direct expense varies materially 
from the budget allowance for such items, management will ex- 
amine the schedule of direct expenses. 

Sometimes even the schedule is not in sufficient detail to 
provide the necessary information; in such cases, the data sup- 
porting the Expense Voucher Register of the agency are gath- 
ered together and submitted to management so as to show all 
of the details in connection with the particular item under 


The overhead expenses of an advertising agency include the 
costs and expenses that do not directly result from the handling 
of one client’s business. These expenses include indirect sal- 

The indirect salaries include administrative, executive, ac- 
counting, secretaries, typists, bookkeepers, clerks. They may 
include production employees, media-department employees 
and part of the time of contact men or other creative people. 


Whitehall Soap Comp 

r March. 19 | Three months ended March U. 19 


Fig. 12. Schedule of Direct Expenses. 


Expense in this classification includes such items as rent, light, 
local telephone, stationery, dues and subscriptions, insurance, 
legal, auditing, etc. Various means have been employed to allo- 
cate general and administrative expenses as properly applying 
to the cost of serving each client. 

In the cost-accounting system described, it is desirable to make 
an allocation of general and administrative expenses to the in- 
dividual client operating statements, but it is not entirely essen- 
tial. The choice of allocating or not allocating expenses in 
connection with the preparation of individual client operating 
statements must be management’s choice and must be depend- 
ent on how management can best understand and interpret the 

Where no allocation is made, the individual client operating 
statement ends with the gross-profit figure. In thinking of this 
figure, management must allow for both general and adminis- 
trative expense and profit. 

Where the expenses are allocated, the amount of such expense 
applying to each client is shown on the individual client operat- 
ing statement, being deducted from the gross profit to produce 
the net operating profit resulting from handling each client’s 
account. However, if an allocation of general and administrative 
expense is to be made, it is necessary to provide a basis for mak- 
ing such an allocation. In determining the basis for such alloca- 
tion, the first question that must be answered is how scientific 
should the basis for allocation be? Ideally no one basis for allo- 
cation could apply to all items. 

Example: The cost of preparing bills to clients and checks to 
publishers could be distributed on the basis of the number of 
transactions rather than on the relative dollar volume of the 
billing or payments. On the other hand, rent might be distrib- 
uted in the same ratio as a distribution of salary costs of direct 

A discussion of the various methods for distributing overhead 
or general and administrative expenses could fill a volume in 


itself. Here it will be limited merely to listing the various meth- 
ods that have been used by agencies. These have been discussed 
in greater detail in the chapter on budgets. 

1. Distribution of items on the basis of direct salaries. 

2. Volume. (This distribution is made by first determining 
what part of the agency’s commissions and fees was earned 
as the result of handling each individual client’s business. 
The expenses are then allocated, using these ratios.) 

3. Insertion orders. (Expenses may be allocated on the basis 
of the number of insertion orders issued.) 

4. Purchase-order basis. (Expenses may be distributed on the 
basis of the number of purchase orders issued.) 


One of the peculiarities of the agency business grows out of 
the fact that the income for work performed is usually recorded 
on the books months after the completion of the work. This is 
because clients must be contacted and advertising plans con- 
ceived and developed long before they can appear in magazines 
and newspapers, as outdoor posters or as radio shows. 

Perhaps the greatest lag between the time of doing the work 
and the time of recording the income is in connection with for- 
eign advertising.* Sometimes this lag is more than one year, but 
there is always a considerable time lapse between doing the work 
and recording the income; for this reason, cost-accounting state- 
ments must be interpreted with care. 

* It is standard practice for agencies to record the commission income 
earned in the month during which the client is billed. So it is important 
wherever practicable that the agency’s invoice be issued on the proper date to 
record the income, as nearly as possible, in the month earned. This is why 
certain newspaper invoices are to be entered as of the last day of the month 
of advertising even though issued during the subsequent month. Unfortu- 
nately, it is not practicable to record every commission in the month earned. 
Perhaps an agency earns commission on media when its work on the adver- 
tisement is completed; certain agency contracts with clients provide for this. 
In other cases, the commission is not earned until the agency is irretrievably 
committed for the advertising space, radio time, etc. 

1 >9 


Obviously, the cost of serving a new client would not be cov- 
ered by the income received during the first few months. Costs 
applying to new clients’ accounts are always likely to be dis- 
torted in proportion to the income shown on the cost-accounting 
statement. One month’s cost-accounting figures are always likely 
to be misleading in themselves. Therefore, the accumulative 
figures for the year to date are much more important than the 
figures for the current month. No conclusions should be made 
based on one or two months’ operations; so where a few months' 
figures indicate the need for action it is generally best to adopt 
a “wait and see” attitude until longer experience can prove or 
disprove the tentative conclusions. 

The gross-profit figure on the individual client operating 
statement is perhaps the most significant one on the report. The 
gross profit is the difference between the commissions and fees 
and the direct expenses. If the records are accurately kept there 
can be little or no question as to the accuracy of the gross-profit 
figure. Agencies should expect to realize a net profit (before 
Federal tax) of about three percent of gross billings or twenty 
percent of the commissions and fees. The gross-profit figure 
must be sufficiently large to provide for general and administra- 
tive expenses and profit. If the three-percent profit on gross bill- 
ings (twenty percent of commissions and fees) is accepted as a 
reasonable figure, then after deducting this amount from the 
gross profit there must still remain an allowance sufficiently 
large to pay the agency’s general and administrative ex- 

While it is difficult to generalize about advertising-agency 
costs and expenses because agencies differ so widely from one 
another in size and type of service performed, perhaps a rough 
guide can be given. General and administrative expenses in an 
advertising agency could vary from a low of ten percent of com- 
missions and fees to a high of thirty percent of commissions and 

For the purpose of discussing methods of interpreting individ- 


ual client operating statements, the following ratios are given 
as an example: 

Commissions and Fees 100% 

Direct Expenses 55 

Gross Profit 45% 

Indirect Expenses 25 

Net Profit 20% 

In the case of this example, a minimum gross profit of twenty- 
five percent is needed to meet indirect expenses alone, while 
forty-five percent is needed to meet indirect expenses and pro- 
vide for a profit of twenty percent of commissions and fees. 

Cost accounting in the agency business furnishes management 
with facts on which intelligent decisions can be based. Just how 
each person uses these facts varies considerably. A few sugges- 
tions can be made, however. 

After one determines which accounts are profitable and which 
are not, both the unusually profitable account and the unusually 
unprofitable account should be investigated; for if an account 
is unusually profitable, it could be that the agency is not per- 
forming all the services that it should. If an account is not a 
profitable one, this does not necessarily mean that the agency 
should resign the business; rather, the facts should be studied 
to determine what, if anything, can be done to turn the loss 
into a profit. 

The first investigation should be directed to determining 
whether or not the agency is spending too much money in con- 
sideration of the services to be performed. Sometimes high- 
priced personnel is assigned to small accounts that cannot eco- 
nomically justify the assignment. In such cases, different em- 
ployees could be assigned. 

In other cases, it may be that the employees assigned to certain 
accounts are devoting too much time to them. This can be deter- 
mined by a study of the work performed in comparison with 
that on other accounts. It may be that the client is receiving 



services that he does not require, and perhaps whole areas of 
work can be eliminated. 

If a careful investigation discloses that the cost on an account 
cannot be reduced, then it is time to determine whether or not 
the operation for the period under study is a typical operation 
with the particular client. Perhaps some unusual work was per- 
formed; or it could be that the income for the particular period 
was less than average. If it is determined that the period under 
study is typical, and that, based on past operations, a continued 
loss could be expected as a result of the operations with the par- 
ticular client, then if there is no feasible way of reducing the 
cost of performing the service, it is entirely practicable to request 
a service fee from the client to augment the commission income. 

Perhaps the most significant facts which can be secured from 
an examination of the cost-accounting statements are found by 
comparing the budget figures with the actual figures for the 

Usually, where a budget is carefully prepared, the difference 
between the two figures is caused by the fact that the operations 
took a different turn from that anticipated. Such differences 
continually occurring indicate the lack of control over the 
operations of the business. Adequate steps should be taken to 
set up controls that will work. Many agencies provide incentive 
systems offering bonuses or other incentives to key men, depart- 
ment heads, contact men, etc. They then hold these department 
heads, contact men and others responsible for operating an ac- 
count within the budget figures. 

In the routine preparation of cost-accounting statements, the 
agency's accounting department should compare the budget 
figures with the actual figures. Where important differences exist 
between the two figures, an analysis should be made to find the 
cause, and an explanation of each difference should be sub- 
mitted to management along with the statements. 

The above are a few of the ways in which the facts secured 
from a cost-accounting system can be profitably used, but each 


individual will develop his own techniques for interpreting and 
using these facts. 

There are no hard and fast rules that can be applied to de- 
termine the cost ratios for such items as contact cost, copy cost, 
art cost, etc. Neither are there established ratios which one can 
use to compare an agency’s costs in connection with indirect 
expenses for items such as rent, supplies, dues and subscriptions, 
etc., because agencies’ operations differ widely from one another 
just as the character of the agencies differs. The cost to service 
one account will vary widely from the costs incurred to service 

A few surveys have been made of the agency business in an 
effort to establish general over-all ratios, and some figures are 
available from these surveys. The American Association of Ad- 
vertising Agencies makes an annual survey of agency costs and 
operations, but the survey is limited to a study of the operations 
of some of the Association’s members, and the results of the 
study are made available only to members of the American 
Association of Advertising Agencies. 

Printers ' Ink recently inaugurated a study of agency opera- 
tions and costs. The figures are available and may serve as gen- 
eral guides and ratios. In comparing the figures of a particular 
agency with general operating ratios, caution must be used, for 
it is difficult to find an agency that is “average.” 


1 Newspapers: Billing, Paying 
and Accounting 


JL HE principles of accounting discussed in this chapter are 
used also in connection with other media. The differences of 
methods are in the detail rather than in the principles. Here, 
the matters of principle are discussed at some length. These 
principles were established with the following objectives in 

1. To achieve complete internal contrbl for protection 
against errors and defalcations. 

2. To function with the greatest simplicity and efficiency 

3. To gain promptness in completing operations. 

The methods discussed have been carefully developed and 
tested over long periods of time. They have provided the ulti- 
mate in flexibility and ease of operation and at the same time 
have provided adequate controls to assure the greatest accuracy. 

One of the cardinal principles used throughout these proce- 
dures is that once a document has been prepared, it is not to be 
copied or recopied. Instead, the original document is used for 
various purposes by filing either the original or carbon copies 
and adding information to the document to complete a trans- 

In the chapters “Media Selection” and “Space Buying,” the 
form and detail of media recommendations and schedules have 
been described. It is sufficient here to repeat that when an ad- 
vertising campaign is developed, a detailed list is prepared to 
show the space to be used in each newspaper, the dates for each 
ad, the size of each ad, the rate per line or inch, and the cost of 


newspapers: accounting 

each ad. The media recommendation, or a more formal sched- 
ule sometimes referred to as an estimate, is presented to the 
client for approval since the agency wants the client to be re- 
sponsible to the agency before it makes commitments with 

After clients have approved schedules or media recommenda- 
tions, they are referred to as approved schedules or approved 
estimates. The approved estimate, schedule or media recom- 
mendation-depending on the form used by the agency— is sent 
to the media department so that contracts can be issued to the 
various papers. 


It is customary for agencies to protect their clients by issuing 
contracts to papers so as to assure the advertiser the best rates 
available. Usually, contracts with newspapers cover a period of 
one year. When a space-buying department receives a copy of 
an approved schedule or estimate, the first job of the department 
is to check the files to see if a contract has already been issued 
to each of the publications listed. Bear in mind that to protect 
a client, the agency must issue a specific contract with each pub- 
lication in behalf of the specific client. Publishers do not recog- 
nize blanket contracts. Figure 13 is a recommended form of 
space contract. It can be noted from Figure 5 (shown on page 
44), which is the reverse side of the first page of the contract, 
that here the standard conditions governing advertising con- 
tracts and orders are imprinted. These conditions set up the 
terms under which the agency buys the space. The recommended 
contract form provides for mailing in window envelopes and 
for the insertion of all the pertinent information in convenient 
order for later reference. 

The contract should include: The name of the publisher, 
the name of the client for whom the space is being contracted, 
the name of the client's product that is to be advertised in the 
publication, the contract period, the position requested in the 
publication such as financial page, sports page, etc., the rate 


of agency commission, the rate of cash discount, the quantity of 
space ordered and, if known at the time the contract is issued, 
the dates on which insertions are to appear. CONDITIO*, „„ W rov,„ (Men, be, of A. A . of A. A.) 



Fig. 13. Space Contract. 

newspapers: accounting 

Usually, a contract for newspaper space calls for space as re- 
quired for a period of one year. In some cases, a minimum quan- 
tity of space may be specified, such as five thousand lines. This 
practice is followed where the paper has a sliding-scale rate 
structure so that it becomes necessary to contract for a minimum 
quantity of space in order to secure a desired per-line rate. For 
example, where a client is to use more than five thousand lines 
of space, and the paper has one rate for less than five thousand 
lines and a lower rate for more, the contract would be issued for 
‘‘five thousand lines or more.” 

There is a box on the upper right-hand portion of the con- 
tract headed “Rates for This Contract.” There is considerable 
space provided in three vertical columns. The one on the ex- 
treme left has no heading. The second one has a heading “Con- 
tract Rate,” and the third has the heading “Next Lower Rate.” 

This entire box with its three columns is used to show the 
various rates for different kinds of space. It is not uncommon 
for a newspaper to have five or six different rates. Papers always 
have different daily and Sunday rates. Some publishers publish 
both morning and evening papers and offer a combination rate 
where both the morning and evening editions are used. An ad- 
ditional combination rate may be offered for morning, evening 
and Sunday combinations. There may be still another rate for 
special positions, such as financial page, sports page, etc. If a 
client contemplates using different types of space which call for 
different rates, this information is noted in the box headed 
“Rates for This Contract.” It would be set up in a fashion some- 
what as follows: 


Contract Rate Next Lower Rate 

Run of paper 55^ a line 5,000 lines 50^ 

Financial page 65^ a line 5,000 lines 60^ 

Morning and evening 

editions combination 80^ a line 5,000 lines 75^ 



From a further inspection of Figure 13, the reader will notice 
that the bottom portion of the first page of the contract is an 
acknowledgment form that the publisher is to fill in, tear off 
and return to the agency. 

This acknowledgment when filled in and returned by the 
publication amounts to an acceptance of the contract and all 
of its terms. Usually the acknowledgment when received is 
pasted or clipped to one of the copies of the contract that is 
retained by the agency. The usual thing is to make at least four 
copies of the contract, although additional copies may be re- 
quired depending on the client’s requirements and the organ- 
ization of the agency. 

Sometimes clients request copies of all contracts issued by the 
agency. In this case, a copy of the contract of course must be 
made for the client. The space-buying department of the agency 
needs to retain one copy of each contract, and the accounting 
department of the agency requires one copy of the contract. 
These three carbon copies are in addition to the original copy 
that is sent to the publisher. 

The question of rates demands special consideration. It has 
been stated that many publications offer special rates where 
large quantities of space are used. This type of rate structure is 
called a sliding-scale rate structure. A newspaper may offer one 
rate for space used up to five thousand lines during a contract 
year. A lower rate may be offered for five to ten thousand lines 
and still a lower rate for ten to twenty thousand lines, with the 
lowest rate being offered for space used in excess of twenty thou- 
sand lines in a contract year. 

There are both advantages and disadvantages in using the 
lower rates. When it is known that a client is going to earn 
a rate lower than the highest rate offered by the paper, and 
if the contract is issued for the total quantity of space that 
the client is expected to use during the contract year, the pub- 
lisher will sometimes bill the space at the lower rate. 

Example: If a paper offers, say, a twenty-five-cents-per-line rate 

newspapers: accounting 

for space up to five thousand lines and a twenty-cent rate for 
space in excess of five thousand lines used in one year, then if 
a contract is issued for five thousand or more lines to be used 
during the contract year, the publication in many cases will bill 
the agency at the twenty-cent rate. If the contract were issued 
for space as required during the contract year without specify- 
ing a minimum of five thousand lines, then the publication 
would undoubtedly bill the agency at the twenty-five cents-per- 
line rate. 

The advantage in using the low rate is that if the paper bills 
the agency at the low rate, the agency then bills the client at 
this rate, and if the client uses the space anticipated, no adjust- 
ment need be made. 

On the other hand, a disadvantage is involved if the client 
fails to use enough space to justify the low rate (five thousand 
lines or more in the example cited) , in which case the paper 
will bill the agency for the additional five cents per line on all 
space used during the contract year. The agency must then bill 
the client for this additional charge. This additional charge may 
be difficult to explain to the client and may lead to disputes and 
difficulties that would never have arisen if the client had been 
billed for the high rate initially and then, if he qualified for it, 
had received a credit for the next lower rate. 


Prior to the date upon which an advertisement is to appear, 
an insertion order is issued to the newspaper to inform the 
newspaper of the details concerning the particular advertise- 
ment which is ordered. The contract that was issued to the paper 
merely reserves space in the publication and protects the client 
from the standpoint of rates and terms. Before any advertisement 
can appear, the agency must issue a specific order calling for the 
publication of that advertisement. Sometimes one order calls 
for the publication of several advertisements, but, in any event, 
an order must be issued before any advertisement is published. 



These orders are always referred to as insertion orders. Figure 
14 is the copy of the insertion order that is sent to the publica- 

On the reverse side of the original or first copy of the insertion 
order, the standard conditions governing the advertising con- 
tracts and orders are usually printed. In addition to the inser- 

Fig. 14. Insertion Order. 

tion order that is sent to the publication, at least one carbon 
copy of the order is made for the agency’s file; sometimes two or 
three carbons are made, depending on the organization of the 
agency and its requirements, but, in any case, at least one copy 
is required for billing and paying purposes which will be dis- 
cussed later. 


newspapers: accounting 

An examination of the first copy of the insertion order. Figure 
14, will indicate that the order is so set up that it may be mailed 
in window envelopes. In addition to the order number and the 
date, space is provided for the name of the publication, the 
address, the rate per line, the cash-discount rate, the commission 
rate, the name of the advertiser, the name of the product and a 
description of the position requested. Even if the run-of-paper 
rate is used, often some specification is made as to position. For 
example, a special request such as the following is frequently 

“Do not publish next to competing advertising. Second, third or 
fourth page urgently requested.” 

An indication is given if the copy is enclosed or forwarded sepa- 
rately; the same is true with regard to “cuts/’ The date of each 
insertion, the advertisement number and the space ordered for 
each date are shown under the appropriate column headings. If 
a series of advertisements is ordered on one insertion order, 
the information to identify each advertisement would read as 

Date of Insertion 

Ad Number 
157 1 

Space Ordered 
120 lines 
160 lines 
180 lines 

Considerable space is provided under the heading “Special 
Instructions,” and under this heading agencies frequently insert 
particular instructions concerning the advertisements to be pub- 
lished. Often agencies give the publication optional dates on 
which the advertisement can be issued. Sometimes in connection 
with clothing advertising or other style material, instructions are 
issued indicating that the advertisement is not to be published 
unless the temperature on the preceding day is equal to seventy 
degrees, etc. Such instructions could be issued in connection 
with straw-hat advertising, for example. 

While there is no guarantee that the publication will accept 
such an order, this is an example of the conditions that agencies 


often attempt to impose upon publications in the interest of 
their clients. 

Each insertion order should cover one month's advertising 
only. This is because the insertion order is used as a basis for 
paying the publisher and billing the advertiser which is done 
monthly. Often advertisers advertise in the same papers month 
in and month out. When this is done, it is advisable to prepare 
the insertion orders by using addressograph plates rather than 
by typing each order individually. 

The insertion order illustrated in Figure 14 has been de- 
signed for use with addressograph plates. The addressograph 
plates insert the name and address of the paper, the line rate, 
the cash discount terms, the commission percentage, the name 
of the advertiser and the name of the product. The balance of 
the order is fdled in by multigraph, mimeograph, hectograph 
duplicating process or spirit duplicator. The checking and book- 
keeping-department copy of the insertion order is illustrated in 
Figure 15. Reference to this figure will quickly indicate that this 
copy of the insertion order (a carbon copy) provides a column 
for indicating the “Space Used” and a column for “Position." 


Where any considerable volume of newspaper advertising is 
transacted, the agency operates a checking department, or at 
least one or two persons are assigned to the job of checking the 
newspaper advertising. The checking of this advertising consists 
of three operations: 

1. Examining the advertisement to determine that it meets 
the quality requirements specified on the order. 

2. Measuring the advertisement to determine the quantity of 
space occupied. 

3. Determining the position of the advertisement as it appears 
in the paper. 

The checking operation is usually performed in the following 
manner: Copies of insertion orders are filed alphabetically by 

newspapers: accounting 

state, city and newspaper name. These orders are either filed in 
a binder, a ledger tray, a vertical fde or some visible filing device. 
The contract that is sent to the publication and the insertion 
order that is sent to the publisher both specify that copies of 
the advertisement are to be sent to the advertiser and to the 



<1 Advertising 








oro« P 6233 

PW« publufi kdrartianc m AmM>. 






Fig. 15. Insertion Order— Bookkeeping Copy. 

agency. It is customary for the publication to send the agency 
(purchaser) one or two copies of the page in which the adver- 
tising appears, or of the entire jmblication itself.* Upon receipt 
of these, the agency’s checking department files the tear sheets 

* A service has recently been provided by the Advertising Checking Bu- 
reau. Certain newspapers employ the Advertising Checking Bureau to 
forward tear sheets (a copy of a page on which the advertising appears) to 
each advertising agency as proof of the insertion of the advertising. 



alphabetically by state of issue, city and name of publication. 

The first job of the checker is to locate the insertion order 
covering the advertising. When this is done, the checker deter- 
mines what the advertising specifications were. If the agency is 
paying a premium for insertion on the financial page or the 
sports page, it is important to determine that the advertisement 
actually appeared on such a page in the paper. If the agency has 
specified that the advertising must not be inserted next to com- 
petitive copy, then it is important that the checker determine 
whether or not this qualification has been met. The checker must 
also examine the advertising to determine that the correct copy 
has been inserted. 

It is not infrequent for agencies to run daily or weekly adver- 
tisements in the same paper for the same client. In such cases, 
the agency may forward the copy for three or four advertise- 
ments to the publication at one time. Newspapers have been 
known to repeat the same advertisement, or to change the order 
of the advertising. Usually, a copy of each advertisement that is 
currently appearing is furnished to the checking department so 
that it can refer to the correct copy when examining the tear 
sheets received from the paper. The checker must also note the 
quality of the printing. After the checker has examined the ad- 
vertisement to determine that it meets the specifications estab- 
lished by the insertion order, the next job is to measure the 
advertising to determine the amount of space occupied. 

It is general practice for advertising agencies to pay only for 
the space occupied by the advertisement, and not to include any 
white space allowed above or below it. This kind of measure- 
ment is called “type to type” measurement. 

Checking-department employees are furnished with rules cali- 
brated in both lines and inches. This type of rule expedites the 
measuring job. The checker measures the advertisement and 
notes the measurement on the copy of the insertion order oppo- 
site the date of the insertion: 

Date of Insertion Ad Number Space Ordered Space Used 
10/20 1234 180 lines 178 lines 


newspapers: accounting 

If for any reason the advertising does not meet the specifica- 
tions contained on the insertion order, the checker notes such 
discrepancies on the insertion order before forwarding it to the 
bookkeeping department. 


Before the agency can accurately bill its client for newspaper 
advertising space, each advertisement must be checked and meas- 
ured to determine that it was properly inserted to meet the speci- 
fications set up, and to determine the number of lines or inches 
used by the advertisement and therefore to be billed. In addi- 
tion, it is an established practice for agencies to pay the news- 
paper and bill the client for the lesser of the amount of space 
computed, whether it be that measured by the agency’s checking 
department or that billed the agency by the paper. It is not 
infrequent for the newspaper to measure the advertisement as 
one line more or less in depth than the measurement computed 
by the agency. Because the agency wishes to give its client the 
benefit of the doubt where two people measure differently, it is 
necessary to compare the linage billed by the newspaper with 
that measured by the agency. 

It is a cardinal principle in agency finance that the advertiser 
must pay the agency for advertising space prior to the date upon 
which the agency is required to pay the publisher. Newspaper 
publishers require payment for advertising space on the tenth, 
fifteenth, twentieth or twenty-fifth of the month following the 
advertising. A large portion of the publishers require payment 
on the tenth or fifteenth of the month following publication. 

In any sizable newspaper advertising campaign, advertise- 
ments will appear in newspapers that are published hundreds 
of miles distant from the agency’s place of business. Where ad- 
vertisements appear during the last few days of a month, the 
tear pages or checking copies of publications, which are fre- 
quently sent second- or third-class mail, may not be received for 
from five to fifteen days after the date of publication. 

Newspapers send bills to agencies once a month. They usually 



submit a separate bill to cover the advertising of each client 
(although a few papers send one bill to cover all the advertising 
purchased by the agency) . Newspapers usually require a few 
days after the first of the month in which to complete theii 
invoicing. The reader will see that, because of this procedure 
agencies cannot receive bills from newspapers before the third 
fourth or fifth of the month following advertising. In some case? 
invoices are not received until after the tenth of the following 

Because it is impossible for agencies to send accurate invoice? 
for newspaper advertising in time to secure payment from clients 
before the agency must pay the publication, it is necessary tc 
develop some procedure through the operation of which the 
agency can collect substantially all the money due for the news 
paper advertising before it has to pay the papers. 

Obviously, to accomplish this, it is necessary for the agenc) 
to get an invoice of some kind to the advertiser on or about the 
first day of the month following the month of advertising. In 
other words, on June first an agency should send invoices to its 
clients covering all of the newspaper advertising for the month 
of May. This invoice cannot represent the exact amount due foi 
space used since the space has not yet been checked and audited 
with bills from newspapers. Several methods are commonly used 
to secure payment from the advertiser so that the money is re 
ceived before the agency must pay the publication. They are: 

1. Billing on a space-ordered basis. 

2. Billing checked space as checked, and unchecked space as 

3. Prebilling on an estimated basis. 

1. Billing on a space-ordered basis 

Where this method of billing is used, all of the insertion 
orders are secured from the checking department, and the total 
linage ordered is multiplied by the rate in order to compute 
the billing price, which is noted on the insertion order. An in 

newspapers: accounting 

voice is then typed by reference to the insertion orders. The 
detailed invoice will appear as shown in Figure 16. Insertion 
orders are returned to the checking department, and after they 

have been completely checked, they are routed to the accounting 
department for auditing against publishers' bills. When this 
procedure is completed, the difference between the linage or- 
dered and the linage to be paid for (the linage measured by the 



agency or the linage billed by the publisher according to which 
is the lesser figure) is noted on the order, and a credit memo is 
prepared by reference to the insertion orders. Such credit memos 

are issued once a month and usually appear in a form similar to 
that shown in Figure 17. 

It can be noted by examination of Figure 17 that the credit 
memo shows for each paper the linage originally billed, the 

newspapers: accounting 

linage which should have been billed on a checked and audited 
basis, and the difference between these, which comprises the 
credit to which the client is entitled. While this method of bill- 
ing provides a basis for securing payment from the client in time 
for the agency to pay the papers, it is a cumbersome procedure 
causing considerable duplicated work for the advertiser as well 
as for the agency, because, when the first invoice is prepared, all 
computations must be made to compute the billing price of the 
space ordered in each paper. 

If the advertiser uses precaution in checking invoices, he will 
want to check all the computations appearing on the invoice. 
The credit memo that will be issued later to show the amount of 
credit due to the advertiser will again require a series of calcu- 
lations and a complete new typing job. Because of the method 
used by newspapers to print advertising, the great majority of 
advertisements will appear in less space than that ordered, and 
consequently there will be a credit due to the advertiser for 
almost every paper used in the advertising campaign during the 

This means that the original invoice on a space-ordered basis 
will show the details of the advertising ordered in each paper 
and that the credit memo which is issued later will again show 
the details of the advertising ordered in each paper, as well as 
the amount of space that actually was used and the credit to 
which the advertiser is entitled. For the client to determine the 
net cost of the advertising in each paper, he must deduct the 
credit issued from the original billing for the same paper, and 
this is a cumbersome procedure. 

2. Billing checked space as checked, and 
unchecked space as ordered 

To accomplish this manner of billing, it is necessary for the 
accounting department to secure all of the previous month's 
insertion orders on about the first or second day of the month 
following the advertising. These insertion orders are taken from 



the checking department where advertisements have been 
checked with tear sheets as the tear sheets have been received. 

Obviously, on the first or second day of the month following 
the advertising, all of the advertisements ordered for the pre- 
vious month will not have been checked by the checking depart- 
ment; but where tear sheets have been received, the checkers 
will have checked the advertisements and measured the space 

Based on the information contained on the insertion orders, 
a detailed invoice is now made up by the accounting department 
by billing the space that has been checked and measured on the 
basis of the number of lines measured by the checking depart- 
ment. Advertisements that have not yet been checked or meas- 
ured are billed on the basis of the space ordered. Obviously, this 
form of hybrid billing is usually unsatisfactory to both the agency 
and the advertiser because, following such billing, it is necessary 
to review all of the work in order to issue credits or additional 
charges to adjust the final billing for the amount of space to be 
paid for. 

To accomplish this final billing, it is necessary to return all 
of the insertion orders to the checking department where there 
are one or more items on an order that had not been previously 
checked. These orders must remain in the checking department 
until the tear sheets are received and the advertisements meas- 
ured. They are then taken from the checking department and 
reviewed by the billing department to determine the difference 
between the space billed on the ordered basis and the space ac- 
tually used (after auditing with publisher's bill) . 

When such differences are isolated and computed, an addi- 
tional invoice or credit memo must be prepared to account for 
the differences. This operation is more complicated than it 
sounds, for it often occurs that two or more different advertise- 
ments are ordered for one client to appear within one month. 
At the time of the first billing, some of the advertisements will 
have been checked and measured, but others will not have been 
measured. In making up the bill to the client, the agency should 

newspapers: accounting 

indicate which of them have been measured and checked in, and 
which have not. Also, after paying the invoice, the client should 
hold the invoice aside and later verify the adjustment for the 
items that had not been measured and checked at the time the 
invoice was prepared. This type of billing— that is, billing some 
items on the basis of space ordered and others on a checked basis 
—is highly unsatisfactory. Newspaper billing should be per- 
formed on an estimated basis, which is next explained. 

3 . Prebilling on an estimated basis 

The properly operated advertising agency secures an ap- 
proved or signed estimate covering the newspaper space to be 
ordered before insertion orders are issued to papers. If, before 
the advertising appears, changes are made, each such change 
should be represented by an approved estimate revision. 

Unless some form of authorization is received by the agency 
from its client, the agency may be in an embarrassing position. 
Since agencies make huge commitments at the special request 
and for the benefit of clients, it is important for both advertiser 
and agency that such expenditures are approved in writing. This 
point cannot be overemphasized, and such written approvals 
have served to eliminate many misunderstandings. Approved 
estimates form the basis for determining the amount of an adver- 
tiser’s commitments for a period. If, in preparing such estimates, 
each estimate is limited to one type of advertising medium and 
one month of advertising, there will be a separate estimate to 
cover each month’s newspaper advertising. These estimates will 
show the total commitment of each client. Prebilling is accom- 
plished simply by preparing a one-line invoice which usually 
reads as follows: 

Newspaper advertising for the month of May, 1948, as 

per estimate #567 $90,000.00 

Less 10% tentative allowance for shrinkage and 
omissions 9,000.00 

Amount now due $81,000.00 



An invoice similar to this is sent to the client on the first day 
of each month to cover the advertising of the prior month. The 
reader will note the arbitrary tentative allowance for shrinkage 
and omissions. By way of explanation, it should be noted that 
some shrinkage (about one and one-half percent) between the 
linage ordered and the linage used is expected. In addition, 
while it is expected that all the advertising ordered will appear, 
the agency should not ask the client for payment equal to one 
hundred percent of the expected advertising, since it is entirely 
possible that some papers may fail to publish. 

Bear in mind that this billing on an estimated basis is merely 
so that the agency secures payment prior to the time it is neces- 
sary for it to pay the publishers. This prebill is not intended as an 
accurate invoice, but the client is asked to pay the prebill and 
is told that as soon as possible after the space is checked and the 
publishers' bills audited, a complete detailed invoice will be 

After the preliminary bill is sent to the client, the newspaper 
tear sheets are checked against insertion orders, and the news- 
paper bills are audited against the linage checked in by the 
agency’s checking department. As soon as the publishers have 
been paid, the agency prepares a complete detailed invoice to 
each client. Such an invoice usually is in a form similar to that 
shown in Figure 18. 

This figure shows that each newspaper used in the advertis- 
ing campaign is listed, and that after the newspaper name there 
are the details of the space used, including the total linage used 
during the month in each paper and, finally, there is the bill- 
ing price of the space. After this detailed invoice is completed, 
it is totaled; and from the total of the invoice, the amount of 
the prebill or commitment invoice is deducted, the balance 
representing the amount due to the agency. This method of first 
sending a prebill on an estimated basis, followed by a detailed 
invoice on the basis of checked and audited space, is by far the 
simplest method that can be used to accomplish the desired 


newspapers: accountinc 

The client has a copy of the estimates which were previously 
approved. These estimates show the amount of the client's com 
mitments for newspaper space. The estimates can be readily 
checked against the prebill sent by the agency on the first o 
the month to cover advertising ordered to appear in the prio: 





FINAL N<) 223J 


DATE August 25, 19 

Whitehall Soap Company 

15 East Street 

Tulsa, Texaa 

Newspaper Advertising For The Month of July 








Pueblo Star Telegram 













♦ 9.24 


Tulsa Hews 


















Less — Our Preliminary Invoice No. 




Credit Due 

$ 4.00 

$ 3.40 

A - ........ . . . f’l 


COP 1 


Fig. 18. Newspaper— Detailed Invoice— Space Audited Basis. 



month. The detailed invoice, which is later prepared and sent 
to the client by the agency, shows the actual amount of space 
used in each paper for the month, thus eliminating the neces- 
sity of making any calculations to determine just how much 
space was used in a certain paper for a certain period of 

It is only necessary for the client to audit one document, the 
final invoice, since this is the only document that contains any 
detail. By the time the final detailed invoice is received by the 
advertiser, the advertiser should have received tear sheets cover- 
ing each advertisement, and these tear sheets may be checked 
against the agency’s invoice in order to prove that the adver- 
tiser is paying only for the advertising that he had actually se- 


The detail of the procedure to be followed to prepare the 
check for the publisher is given below on the assumption that 
first the agency prepares an estimated invoice as explained pre- 
viously, and that later the detailed invoice is prepared after all 
of the space has been checked with tear sheets and the linage 
audited against that billed to the agency by the newspaper. 

The steps in the procedure are numbered in the order of their 
normal sequence: 

1. Copies of insertion orders are taken from the checking 
department as bills are received from newspapers. (It is assumed 
that advertisements have been measured and linage used noted 
on the insertion orders.) 

2. Bills from newspapers are audited with copies of insertion 
orders, at which time the following is verified: 

Rate charged per line or inch. 

Agency commission rate allowed. 

Cash discount rate allowed. 

Number of lines charged for on each insertion date. 


newspapers: accounting 

(If the newspaper charges for a lesser number of lines than 
that measured by the agency, the insertion order is cor- 
rected to show the linage charged for by the paper.) 

If the rate per line or inch as charged by the paper is different 
from that shown on the insertion order, the proper or correct 
rate is ascertained and is used in making further computations. 



500 NOUTM fkVC 


o«oco No 9729 
omr Juna 28 , 19 

To The Star Telegram 

40 Third Street 
Pueblo, Texas 

H«TC $.55 

c*su o»sc 2 % COMM 15* 

<*OvXRTist« Whitehall Soap Company 


Best Position Possible 
Near Editorial Page 

Bootfiecpifcjc. i cwextoNc, co or 

• O MO 








total SPPCC 








CX 3 

9 A 



Fig. 19 . Bookkeeping Copy— Insertion Order. 

3. The total linage used is computed by adding the lines used 
on each date. This is multiplied by the rate per line to determine 
the gross billing price. The agency’s cost, the cash discount and 
the net payable are then computed, all as shown in Figure 19. 

4. After the computations (listed in 3 preceding) have been 
made, all the insertion orders for one paper are gathered to- 



gether and an adding-machine tape is taken of the net amount 
payable, to determine the amount of the check to be issued 
to the newspaper. When this has been completed, the adding- 
machine tape is clipped to the copies of the insertion orders for 
each paper, and they are sent to a disbursing clerk together with 
the bills from the paper. 

Previously it has been stated that newspapers send separate 
bills for each client's advertising and, further, that they forward 
two copies of each bill to the agency. Even though these requests 
are made, occasionally a newspaper will fail to meet the agency’s 

In such case, it is advisable to prepare separate dummy bills 
for each client by reference to the one bill sent to the agency by 
the paper, which bill covers the charges on account of all clients 
of the agency. In addition, if the paper fails to send bills in 
duplicate, a duplicate copy of the newspaper’s bill should be 
made to be used in the procedure which is explained in the 

5. When the disbursing clerk receives the copies of insertion 
orders with adding-machine tapes attached, representing the 
totals due to each paper, he receives also copies of bills from 

Here it should be noted that where the agency’s payment is 
going to differ from the publisher’s bills, the difference should 
be noted on both copies of the publisher’s bill. Such differences 
occur frequently because of different linage or different rates, 
and, .as stated before, the differences should be shown on both 
copies of the publisher's bill, and the total of the publisher’s bill 
should be corrected to agree with the computations as shown on 
the insertion orders. 

6. A check is now typed in triplicate.* The original copy is 
sent to the publisher together with one copy of the publisher’s 

* In some cases, the check is prepared in quadruplicate. The cash disburse- 
ment procedure described in the chapter "General Books and Chait of 
Accounts” requires one carbon of the checks to be filed for bank reconcilia- 
tion purposes and computing bank balances. It requires an additional carbon 


newspapers: accounting 

bills. Figure 20 is one type of check that is successfully used in 
payment of newspaper advertising. Note that this check is de- 
signed for use in window envelopes. Under certain conditions, 
a different check is desirable. An example of such a voucher 


1 cuieaco August 2Q 


Pav four hundred fifty two dollars and 




T* Tmc 

0«ot« Or The Star Telegram 

40 Third Street 

Pueblo, Texas 






DfTACW BtroRc 



Less Discount 




Fig. 20. Check Used for Paying Newspapers. 

check is shown in Figure 21. This type of voucher check is used 
in some large agencies where automatic-tabulating accounting 
machines are installed. 

of the check to be filed separately by type of medium for accumulating the 
total payments made to each medium. Still another carbon of the check is 
required for attaching to the publisher's invoice. This final carbon of the 
check which is attached to the newspaper’s bill may be dispensed with and, 
instead, the newspaper’s bill may be marked with a rubber stamp: “Paid, 

19 ” 


Fig. si. Voucher Check— Tabulating. 

newspapers: accounting 

Figure 22) is stapled to the copies of the publisher's bills, and 
the check and publisher’s bills are filed alphabetically for future 
reference. The other copy of the check is filed in numerical se- 
quence and constitutes the cash disbursement record of the 
agency. The third carbon is filed by medium. 

8 . Insertion orders that have now been paid are filed, await- 
ing the preparation of the final detailed client invoice. All inser- 

No. 5255 

August 20 




The Star Telegram 

40 Third Street 

Pueblo, Texas 


Less Discount 

. . . .$461.89 



$ 1 * 52.65 

Fig. 22. Carbon of Check. 

tion orders which have been paid, but which have not yet been 
billed, are lodged in one file. 


As soon as the payments for the month have been completed, 
all paid and unbilled insertion orders are taken from the file for 
the purpose of preparing the client invoice. Insertion orders are 
now sorted so as to gather all of the orders pertaining to one 
client. These stacks of orders are then re-sorted so as to bring the 



orders into alphabetical sequence by the name of the state, 
the city and the publication. The information contained on the 
insertion orders for the client is transcribed by the typist to the 
client invoice, which, when completed, appears in Figure 18, on 
page 143. 

It is important to note that the copies of the client’s invoice 
which are retained by the agency are wider than the copies which 
are sent to the client. These office copies, or carbon copies, of the 
invoice show the agency cost of each item, as well as the gross 
billing price. This information is needed for the bookkeeping 
entries which will be discussed later. 

Clients usually require two copies of each invoice. A third 
copy is needed for the agency’s own records. Sometimes a 
copy of each invoice is made and it is filed by the treasurer in a 
tickler file under the date on which payment should be received 
by the agency. 

After the invoices have been typed and totaled, the original 
copies are mailed to clients in window envelopes and the office 
copies are filed. 

The invoice number is now noted on each insertion order that 
has been billed, and the insertion orders are filed in a completed 
file containing paid and billed insertion orders. These files are 
usually segregated by clients and further segregated alphabeti- 
cally by state, city and paper name. At the beginning of the 
description of these detailed billing and paying procedures, it 
was explained that the assumption was made that a preliminary 
or estimated bill had been sent to the client. Based on this 
assumption, the payments are usually made to the papers before 
the detailed invoice is prepared. Occasionally, for one reason or 
another, a paper is not paid prior to the time of preparing the 
detailed client invoice (approximately the twenty-fifth of the 
month following the advertising) . 

In exceptional cases payments to papers could be held up 
because of missing tear sheets, a dispute in rates, a question as 
to the quality of the printing or for various other reasons. Some- 
times clients wish to have all of their billing for a month com- 

newspapers: accounting 

pleted, so they request the agency to include charges for all 
advertising which has appeared, even though the agency has 
not yet finally satisfied itself as to the correctness of the charges. 

As stated previously, in such cases, the agency would not have 
paid for the item at the time the detailed invoice was prepared 
for transmission to the client. When this occurs, the insertion 
orders would have been taken from the checking department 
file, but at the time of payment they would have been held up 
because of the questioned items. 

Such insertion orders would then be used in preparing the 
client invoice even though payment had not been made to 
papers. These insertion orders, which contain no indication of 
payment, cannot be placed in a paid-and-billed file after the 
client invoice has been prepared, but must be filed in a billed- 
but-unpaid file. Thus there usually are four files of insertion 

1. The unpaid and unbilled orders which are kept in the 
checking department and then sent to the accounting de- 
partment to be audited against publishers* bills. 

2. The paid but unbilled insertion orders which are filed in 
the accounting department directly following the payment 
of publishers* bills. 

3. The billed but unpaid insertion orders consisting of those 
items which have been invoiced to clients, but which have 
not been paid. 

4. The paid and billed orders. 


The bookkeeping and accounting entries that are required 
are limited to those listed below. No others are needed. The 
customary accounts-payable and accounts-receivable ledgers are 
eliminated entirely where the procedures outlined are followed. 

The preliminary invoice which is prepared on the first or 
second day following the month of advertising shows the esti- 
mated billing price of the newspaper space for the prior month. 



At the outset, it is known that this is not an accurate invoice. It 
is sent to the client for the primary purpose of collecting the 
monies due with a minimum of effort on behalf of the agency 
and the client. 

In addition to serving this function, the preliminary invoice 
serves as a basis for entering the sales of space and the cost 
thereof. As a matter of accounting principle, the client is in- 
debted to the agency as soon as the advertising appears, and 
certainly the agency is indebted to the publisher at such time. 
Therefore, for proper accounting, newspaper-space billing 
should be entered on the agency's books on or before the last 
day of the month in which the advertising was published. 

Usually, it is not feasible for an agency to send the prelimi- 
nary estimated bill to its client until the first or second day of 
the month following the advertising because it is desirable that 
all advertising ordered during the month be included. There is 
no objection to giving this invoice the date of the last day of the 
month of advertising, even though it is actually prepared on the 
first or second day of the following month. 

By dating the preliminary estimated invoice as of the last day 
of the month of advertising, it can be properly entered in the 
agency's books and records as of the month of advertising. The 
estimated invoices are usually prepared from approved esti- 
mates, media recommendations or signed schedules, since such 
records form a basis for securing the needed information with- 
out the necessity of again calculating the billing price of the 
space ordered in each newspaper. 

These figures were already developed in preparing the esti- 
mate, schedule or media recommendation. To determine the 
cost of the space billed to the client on the preliminary estimated 
invoice, it is usual to multiply the billing price by eighty-five 
percent, since by far the majority of newspapers allow a fifteen 
percent agency commission. A cost figure which equals eighty- 
five percent of the billing price as shown on the estimated in- 
voice is sufficiently accurate for recording this invoice and the 
cost of the space billed. 


newspapers: accounting 

A Sales and Cost Journal is one of the principal books of 
original entry of an advertising agency. All invoices sent to cli- 
ents are entered in this record. A preliminary invoice would be 
entered in a Sales and Cost Journal in the manner shown in 
Figure 23. Note that the sale is recorded under newspaper bill- 
ings, and the cost of the space is recorded under newspaper 

The final accounting entries will be made from totals taken 
from this Sales and Cost Journal at the end of each month and 
they will be discussed later. When the final detailed invoice is 
prepared, after all space has been measured and the insertion 
orders audited against publishers' bills, the totals as shown on 
this final invoice are entered in the Sales and Cost Journal. 

In Figure 18, there is shown a final detailed invoice. Note 
that from the gross totals on this invoice there has been sub- 
tracted the amount of the preliminary invoice, leaving a bal- 
ance in both the billing-price column and the cost column. 

The balance in the billing-price column represents the 
amount still due to the agency by the client, and the balance in 
the cost column represents the adjustment of the estimated cost 
as originally shown on the preliminary invoice. 

These two figures are now entered in the Sales and Cost Jour- 
nal as shown in Figure 23. At the end of the month, each column 
in the Sales and Cost Journal is totaled, and the total of the 
column headed “costs, newspapers" represents a charge to “cost 
of newspaper sales" and a credit to “accounts payable" control 
account. The total of the column “sales, newspapers" represents 
a charge to “accounts receivable" control and a credit to “news- 
paper sales." 

In examining these accounting entries, it is important to note 
that “accounts payable" control account is never credited until 
the client is billed. The “accounts payable" control account is 
supported in detail by the files of insertion orders and the pre- 
liminary invoices which have not been finally billed. In other 
words, the total cost of the space as billed on preliminary in- 



CLIENT $IUljLtkd&<$QO^Ce MOWTM OF (tlUjALbl I*} 









0 i 
> ^ 


< -i 


O ^ 

cc ►- 







> Q. 
























0 g 

1 2 






* . 






| X 




< a 

§ 2 

^ * 






y a 


s 5 

— rv 
















Fig. 23. Sales and Cost Journal. 

newspapers: accounting 

voices for which no final billing has been completed, plus all 
insertion orders which have been billed but have not been paid, 
minus all insertion orders which have been paid but which have 
not been billed, represents the detail of the control account 
“accounts payable, space.” 


3. Hapzines and Trade Papers: 
Billing, Paying and Accounting 


JL HE methods used to bill, pay and account for magazine space 
are similar to those used for performing the same functions in 
connection with newspaper space. For that reason, only the 
differences in the two procedures will be discussed in this 


Contracts for magazine space specify the amount of space to 
be used and in many cases specify the dates on which advertise- 
ments are to appear. They specify the type of space contracted 
for, such as inside front or back cover, the number of colors in 
which the advertisement is to be printed, etc. This is because 
magazines go to press so far in advance of publication date that 
they require this information in order to make up the magazine 
properly and reserve the required space for the advertiser. The 
contract issued to cover magazine space then, unlike the contract 
for newspaper space, completely describes the space contracted 
for, and for many purposes could be considered as a definite 


An insertion order is issued by the agency to cover each 
month's advertising in a magazine. The magazine insertion 
orders are similar to the newspaper insertion orders except that 
it is unnecessary to provide for recording the amount of space 
used to publish the advertisement, since magazine advertise- 


ments are printed from plates and the advertisements always 
require the entire amount of space ordered by the agency. 


Many magazines' terms provide that the agency make pay- 
ment for the space prior to the publication date. For this reason, 
it is not possible to verify the appearance of the advertising 
before paying the magazine’s bill; and since the agency collects 
from its clients on or before the date that it is required to pay 
the publisher, the client must be billed before the advertising 
has actually appeared. 

Two carbon copies of magazine insertion orders are required 
in the bookkeeping process. One copy is sent to the checking 
department where it remains until after the magazine has been 
received and the advertisement checked. The bookkeeping copy 
of the insertion order is sent to the accounting department im- 
mediately after it is issued. 

This copy of the insertion order is filed in a tickler file under 
the date on which the client should be billed (about fifteen days 
prior to the date on which the agency must pay the publisher) . 
After the advertisement has been billed to the client and per- 
haps after the agency has paid the publisher, a copy of the maga- 
zine is received in the checking department and the advertise- 
ment is checked. The checking copy of the insertion order is 
then initialed by the checker to indicate that the advertisement 
appeared in proper form in the magazine, after which it is sent 
to the accounting department. 


Weekly magazines usually require payment from the agency 
on the tenth, fifteenth or thirtieth of the month of issue. Some 
monthly magazines require payment during the month preced- 
ing issue; others require payment during the month of issue. 

On the billing date, the bookkeeping copy of the insertion 
order is taken from the tickler file and an invoice is typed by 
reference to the insertion order which contains all the particu- 



lars required for billing. The date on which the invoice was pre- 
pared is noted on the insertion order and it is filed in a billed- 
and-unpaid file. No adjustment of the original billing is re- 
quired in connection with magazine space for, unlike newspaper 
space, the advertisements in magazines always require the 
amount of space ordered by the agency. 


When the bills are received from magazine publishers, the 
insertion orders covering the space are located in the billed-and- 
unpaid file. The publisher's bill is audited against the insertion 
order and the check is prepared. The date of the payment is 
entered on the insertion order which is then filed in a paid-and- 
billed file. 

In some instances, agencies pay magazine publishers before 
they bill clients. This condition occurs where the agency does 
not have sufficient credit with the publisher. The publisher may 
require in such cases that the agency pay for space on closing 
date (the date that the magazine goes to press) . 

Since under normal terms the agency cannot bill its client 
until ten or fifteen days prior to the date on which the magazine 
would normally require the agency to pay for the space, it be- 
comes imprudent for the agency to bill the client in time to 
receive the money to make the payment to the magazine pub- 
lisher on closing date. 

When this condition occurs, the copy of the insertion order 
is taken from the unpaid-and-unbilled file, the payment is made 
and the date of the payment is indicated on the insertion order, 
which is then filed in a paid-but-unbilled file under the proper 
billing date. 

On the proper billing date the invoice is prepared and sent 
to the client. The billing date is noted on the insertion order 
which is then filed in the billed-and-paid file. 


4. Radio Time: Rilliag, 
Paying and Accounting 


llADIO advertising requires “time on the air,” radio per- 
formers and, in some cases, scripts, sound effects, recording, 
etc. Time on the air is purchased from either independent 
stations or networks, that is, groups of stations such as the 
National Broadcasting Company, American Broadcasting Com- 
pany, Mutual Broadcasting System or Columbia Broadcast- 
ing System. 

Advertising agencies, in some cases, purchase only the time 
on the air from the radio station or network; and they purchase 
the talent, sound effects and other required items separately. In 
other instances, the advertising agency purchases time on the 
air, the required talent, sound effects and production materials 
directly from the radio station or network. When this is done, 
it is called a “package,” and the broadcast is referred to as a 
“package show.” 

The advertising agency receives a fifteen percent commmis- 
sion from the radio station on all charges for time on the air. 
Where package shows are purchased, or in other cases where 
either talent or production materials are purchased by adver- 
tising agencies from radio stations or networks, the radio sta- 
tion or network allows no commission to the agency on either 
talent or production materials; but it is usual for the agency to 
add 17.65 or 15 percent to the cost of talent and production ma- 
terials purchased from networks or stations when computing the 
billing price of these items. (When 17.65 percent is added to 



the cost, the commission realized on the selling price— 117.65 
percent of the cost— is fifteen percent of the selling price.) 


Contracts for radio time or for package shows are prepared 
by the radio station or network that is selling the time to the 
agency. Note the difference between this and the procedure fol- 
lowed in publication advertising where the contract is prepared 
by the agency and sent to the publication. 

Radio time and radio package shows are sold in units of weeks 
of broadcasting and regularly cover thirteen-week periods, or 
multiples thereof. In many cases, the cost of the “time on the 
air" is reduced as the volume of time used increases; thus, the 
rate for each week's broadcasting is less per broadcast when 
twenty-six weeks* time is contracted for than when only thirteen 
weeks' time is used. 

Usually, where better rates are offered for longer periods of 
time, contracts between stations and agencies provide that, if 
the contract period is extended, then the rate per broadcast will 
be retroactively adjusted. If, for example, the station has better 
rates for a twenty-six-week period than for a thirteen-week 
period, and only a thirteen-week commitment is entered into 
originally, and the contract is renewed for an additional thirteen 
weeks, then there will be a retroactive rate adjustment to the 
first thirteen weeks of broadcasting, and the next thirteen weeks 
of broadcasting will be at the twenty-six-week rate. 

Where talent is purchased separately by the agency, of course 
a separate contract is entered into between the agency and the 

The contract for live talent, when it is made separately, must 
cover a period running concurrently with that covering the ra- 
dio time on the air; for obviously the talent is useless without 
the time on the air. Just as obviously, time on the air is planned 
with specific talent which is purchased for a particular pro- 


RADIO time: accounting 

The contract between the station or network and the agency 
will be specific even as to small detail. It will cover the time 
that the radio show will be broadcast each day, on what day or 
days of the week the show will be broadcast, and all of the con- 
tingencies that could be anticipated, such as interruptions in 
the program, omissions of broadcasts, etc. 

Often the contracts between radio stations or networks and 
advertising agencies are non-cancellable contracts. This sug- 
gests the enormous contingent liability or commitment that an 
agency can have in connection with a radio show covered by a 
fifty-two-week contract. Before an agency signs a contract with 
a radio station or network, it is of course necessary that the 
agency have a firm commitment from its client. 

It is suggested that the client be required to sign a contract 
with the agency containing exactly the same terms and condi- 
tions as the contract that the agency is required to sign with the 
radio station or network. This is for the station's benefit as much 
as for the agency’s. It also benefits the client, since it is certainly 
desirable that the client understand just what his commitment 
is— particularly in the case of radio advertising where the non- 
cancellable commitments can run into vast sums even in short 
periods of time. 

In certain types of radio advertising, the agency is required 
to furnish the station or network with scripts, recordings or 
other materials for the show. Where this is the case, the agency 
is obligated to secure the needed items and furnish them to 
the radio station or network in advance of the broadcast 

Usually, agencies have separate departments for the produc- 
tion of radio advertising, including scriptwriters and copywrit- 
ers. The difference between the two titles is that scriptwriters 
write stories and copywriters write advertising copy. Some radio 
advertising of course requires no scriptwriting, sound effects, 
or other services or materials. 

In the early days of radio advertising, advertisers and agencies 



attempted to verify the programs broadcast by each station by 
appointing individuals in each city to listen to the broadcast of 
the station located in that city and to file a report on the quality 
of broadcast, the content of the broadcast and the elapsed time 
required. This type of verification proved to be expensive and 
cumbersome. Some agencies and advertisers still check radio 
broadcasts through the advertisers’ dealers or through separate 
third-party organizations of one type or another. But most ad- 
vertisers and agencies rely on the honesty of the broadcasting 
station which furnishes affidavits certifying the fact that each 
broadcast charged for was actually performed. 


After the agency has entered into a contract with a radio 
station or network, the essential informatiort required for ac- 
counting purposes should be extracted from the contract so that 
it will be readily available from week to week and month to 
month as it becomes necessary to refer to such data for book- 
keeping and accounting purposes. It is best to compile this in- 
formation in an orderly fashion so that it can be more efficiently 
used by the agency’s bookkeepers and clerks. A billing work 
sheet such as that shown in Figure 24 is a convenient form for 
extracting the needed information from radio contracts. Billing 
work sheets should clearly set forth all of the following informa- 

Client name. 

Station name. 

Station address. 

Name of the program. 

Term of the contract. 
Commission rate. 

Cash discount terms. 

Times and days of the broadcasts. 
Rate per broadcast. 


radio time woes sheet 


Fig. 24. Radio Billing Work Sheet. 


The billing work sheet should provide ample space for com- 
puting the amount due the station and the amount to be billed 
to the client for each week or month of the contract period. 
Some radio stations bill agencies on a weekly basis, others on 
a monthly one. 

Where the agency is billed on a weekly basis, it sends invoices 
to clients each week; where it is billed on a monthly basis, it 
bills its client on the same basis. If weekly bills are sent, the com- 
putations and invoices are prepared on the last day of the 
week; monthly invoices are prepared on the last day of each 

When the agency prepares the invoice to its client to cover 
either a week’s or a month’s broadcasting, those invoices are 
prepared on the basis of full performance, since on the last day 
of the week or month of broadcasting, the billing clerks have 
not yet received bills from radio stations and therefore cannot 
account for interruptions and omissions. The procedure for 
handling such omissions and interruptions will be described 
later. Billing work sheets should be arranged alphabetically 
by client, with each client’s billing work sheets arranged alpha- 
betically by station call letters. 


As was stated previously, invoices for clients are prepared by 
reference to the file of radio-billing work sheets. Invoices could 
be prepared by referring directly to contracts with radio sta- 
tions, but these contracts are legalistic in form. Therefore, to 
excerpt the needed information would require considerable 

It is for this reason that the billing work sheet is prepared 
as soon as the contract has been completed, so that then this 
work sheet can be referred to month in and month out until the 
contract has expired. A separate invoice should be prepared for 
each program. This means that there could be two or more 
invoices covering broadcasting from the same radio station, 

RADIO time: accounting 

since one client may purchase several programs from one sta- 
tion and each program could be covered by a separate contract. 
See Figure 25 for a typical invoice covering radio time. 

At least three copies of each radio-time invoice should be 
prepared by the advertising agency. The original is to be sent 
to the client; the file and bookkeeping copies are to be retained 
by the advertising agency. After the invoices have been pre- 
pared, all radio-time invoices for one client should be grouped 


invoice «ov£«rT.s t N* 


C.Htcec»o a, icl 




Product Bcaute** Sonp 

OPTC July 31, 19 


City Chicago STATC 


PAOlO time CHAO(,ts FOP momt*- 1 OF July j 

LENqTM of 




no or 




u t, 'A, a rrt 

J u 1 v 1 , 7 , ) 0 , 1 ? , 1 , , 1 ; , 
l l * , . f , « 

5 Min. 

9.00 AM 


$ 10.00 

8 120.00 

t 112 OO 

D . . 1 / I xot’pt i.iu. J 

L h at- i 

Jul> 1 , Jf A • 5 . 6 , 7 , , L' 1 , l 1 , 
12,11,14,1 .17,10,17, 

20,21 ,22,2/,,. >,.'0,27, 

PP . 29 

8 W^rdi 

12*00 M 





Min . Ar.noancomoiUs -Sit -Sun 
July 1,2,8,9,15,16.2 ’,.‘3. 

1 Min. 

H 00 I’M 






f '10 5.00 

t 269.2* 

1 ’ Acn - a -An - 


w *" 


Fig. 25. Invoice for Radio Time. 

together and attached to a summary invoice. The summary 
invoice usually contains wording such as the following: 

Radio-time charges for the month of January. 

See attached detail invoices (one for each 

station and program) $10,000.00 

Reference to Figure 26 will illustrate the fact that the book- 
keeping copy of each radio-time invoice contains not only the 



billing amount but the cost amount as well. In addition, space 
is provided on the bookkeeping copy of each invoice to record 
adjustments to the original invoice and payments to radio sta- 

Fic. 26. Invoice for Radio Time— Bookkeeping Copy. 


When the agency first prepares the invoice that it sends to its 
client for the radio-time charges, that invoice is prepared on 
the basis of the number of broadcasts contracted for; at this 

RADIO time: accounting 

time no adjustment is made for interruptions, omissions, etc. 
The bookkeeping copy of the client's invoice is designed to act 
in the same manner as a payment voucher. 

In other words, it is used as the authorization for the payment 
to the radio station. This is because the agency, having billed 
its client for the radio time, can authorize payment in an 
amount not exceeding the legitimate cost of the items so billed. 
Of course it is necessary for the agency to verify the cost of 
these items by comparing the figures shown on the bookkeep- 
ing copy of the invoice with those shown on the radio station's 
bill to the agency. It is also necessary to examine the affidavit 
from the station to determine that all broadcasts scheduled actu- 
ally were performed. 

Bookkeeping copies of radio-time invoices to clients are filed 
by the agency in a file called “Billed but Unpaid Items." It is 
important to note that when an invoice is prepared, that invoice 
is entered in the Sales and Cost Journal and the cost of the radio 
time is thereby credited to accounts payable. Accounts-payable 
radio time is never credited until a client is billed, since this 
credit originates from entering clients’ bills to the Sales and 
Cost Journal, as will be seen in greater detail by examination of 
the chapter “Chart of Accounts and Accounting Records." No 
radio station should be paid without a client’s having been 
billed, as will be seen in the following: 

When a bill is received from a radio station, affidavits verify- 
ing the broadcasts should accompany such bills. The bills from 
the radio stations are then audited against bookkeeping copies 
of invoicessent to clients (found in the “Billed-but-Unpaid" files). 
If no bill has been sent to a client for the item billed by the 
radio station, an invoice should be prepared before the radio 
station's bill is passed for payment. If the station’s bill allows 
credits for interruptions or omissions, etc., then that informa- 
tion should be posted on the bookkeeping copy of the agency's 
invoice. The check number and the amount paid to the radio 
station is to be noted on the bookkeeping copy of the client 


invoice, and the check is sent to the radio station. Figure 27 is 
a typical check issued by an agency in payment of radio time 
charges. Duplicate copies of checks issued to radio stations are 
filed and the total of such duplicates at the end of the month 
is charged to “accounts payable, radio time.” The bookkeeping 
copies of the original radio-time invoices sent to clients are now 
examined to determine if any billing adjustment is required. 


CHICAGO Au&iial 15 19 



T* The 

O«0t« Of W 14 A Q 

Chicago, Illinois 





Per yoor invoice Attached 

Fig. 27. Check Paying for Radio Time. 


After the radio stations have been paid, the bookkeeping 
copies of the original invoices sent to clients are used to prepare 
adjustment invoices. Usually these adjustment invoices are the 
equivalent of credit memos, for it is rare that a client would 

RADIO time: accounting 

be billed for more time than that contracted for (the original 
billing being based on the information shown on the billing 
data sheets which were in turn prepared by examination of the 
contracts between the agency and the radio station) . 

However, it is not unusual for radio stations to omit parts or 
all of some broadcasts; and the station's bill then allows credit 
for the time that was not used so that the adjustment invoices 

Fig. 28. Credit Memo— Radio Time. 

to the agency’s clients are generally credits. These credit memos 
are prepared in much the same fashion as original invoices are 
prepared. (See Figure 28.) 

When adjustment invoices are prepared, the carbon copies 
are attached to the carbon copies of the original invoices so that 
the bookkeeping copy of the invoice originally prepared and the 
bookkeeping copy of the adjustment invoice relating to the 
original invoice are both finally attached together. 




The sales of radio time are entered in the Sales and Cost 
Journal by posting the sales price in the column headed “Radio 
Time.” This procedure is described in greater detail in the chap- 
ter “General Books and Chart of Accounts.” 

The total cost of each invoice is also entered in this record 
and from there is credited to the accounts-payable account in 
the General Ledger. As a result, “accounts payable, radio time” 
is credited with the cost of all items billed. If an original invoice 
is adjusted by a secondary invoice or credit memo, this adjust- 
ment invoice or credit memo is also recorded in the Sales and 
Cost Journal and thereby acts as an adjustment to the accounts- 
payable account. 

The total entered in that account represents the actual cost 
of the radio time as it is finally billed to clients. The cost of 
radio time must be paid by the agency to radio stations and 
networks. When the stations and networks are paid, the total 
of the checks issued is charged to “accounts payable, radio time,” 
so that the balance in that account represents the unpaid items. 

In this chapter under the heading “Payments to Radio Sta- 
tions,” it has been stated that the payments to radio stations 
were made after auditing the radio station's bill with the book- 
keeping copy of the invoice the agency sent to its client. At this 
time the check number and date of payment are recorded on this 
copy. The bookkeeping copies of invoices which have not yet 
been used for payment are filed in a file called “Billed but Un- 
paid Items.” As soon as payments are made to radio stations 
and networks, these bookkeeping copies are removed from the 
file “Billed but Unpaid Items” and are placed in a file called 
“Billed and Paid Items.” 

Consequently, all of the bookkeeping copies in the file called 
“Billed but Unpaid Items” when added together should equal 
the balance in the General Ledger account called “accounts 
payable, radio time." 


5. Radio Talent and Production: 
Billing, Paying and Accounting 

In DISCUSSING the methods used for billing, paying and ac- 
counting for radio time, it has been stated that various types 
of arrangements are made between the advertising agency and 
the radio station or network. In some cases, the radio station 
furnishes all the required items including the talent, the writ- 
ers, directors, recordings, sound effects, etc. In others, the agency 
merely buys the time on the air from the radio station and then 
secures the talent, recordings, sound effects, etc., elsewhere. 

Where the radio station furnishes the required items, the 
costs are billed to the agency with the time cost. Where the ad- 
vertising agency employs the talent or purchases other items 
such as recordings, sound effects, scripts, etc., it is necessary to 
provide for accumulating these costs for use in preparing in- 
voices to clients and for paying the talent and suppliers of 
materials and services. 

The methods used arc similar to those described for billing, 
paying and accounting for advertising materials. In the prepa- 
ration of the printed advertisement, it is necessary for the 
agency to purchase advertising materials from outside suppliers. 
Likewise, to complete a radio broadcast, the agency must pur- 
chase the talent and supplies to be used for each radio program. 
The costs of the services and materials purchased in connection 
with the production of a radio program are billed to clients at 
the agency's accumulated cost plus a commission of either 17.65 
of 15 percent which is added to the cost of the services and ma- 




It is desirable that costs relating to each separate program 
be accumulated and billed separately. Therefore, a separate 
production order should be prepared to cover each job repre- 




NO. 1Z34 

















Sound Effects 
Studio Time 

Masters «vnd Safeties 

Acetate Dues 


Air Checks 



Commission on ♦ 

Billing Amount 



Fig. 29. Production Order— Radio. 


senting one radio program. (See Figure 29.) It is suggested that 
the radio production orders be prenumbered at the time of 
printing. The numbers of these orders will be referred to as 
job numbers. 

Each radio production order should contain the following 

Advertiser’s name. 

Name of the program. 

Broadcast time. 

Indication of the type of job, viz., live broadcast, recording, 
audition or miscellaneous. 

In the body of the radio production order, the various items 
of cost such as talent, writers, musical arrangements, sound ef- 
fects, studio time for recording, masters, safeties, pressings, etc., 
should be stated. 

One copy of each production order should be forwarded to 
the accounting department as soon as it is prepared. The actual 
amount of each item shown on the production order should be 
recorded by the accounting department from the talent vouch- 
ers and suppliers* bills. 


In addition to preparing radio production orders, separate 
radio talent vouchers must be prepared by the radio depart- 
ment for each job number. (See Figure 30.) The name and ad- 
dress of each person employed and the amount to be paid are 
indicated. The accounting department is to receive one copy of 
each talent voucher. The computations of the social security 
tax deductions and the amount of income tax to be withheld 
will be made in the accounting department for the purpose of 
preparing pay checks. 


The accounting department will maintain a file containing 
folders for each job number. Each file folder will contain a copy 



of the radio production order, a copy of the radio talent vouch- 
er or vouchers, and copies of all bills received from suppliers. 
In this manner, the original information concerning the costs 
accumulated for each job is maintained without the necessity 
of copying or recopying any figures. 

It is necessary that all bills received from suppliers be first 
approved for payment by the radio department. The copies of 
radio production orders are filed as soon as they are received in 
the accounting department; however, the copies of the radio 
talent vouchers must first be computed for social security and 
withheld tax deductions, and the payments to be made for these. 
The check numbers covering the payments to the talent should 
be recorded on the radio talent voucher forms. 


There has always been a question as to whether the agency 
or the client is the employer of the talent. If the agency is the 
employer, it is required to pay the regular social security and 
withheld taxes to the Government. It has been more generally 
accepted that the client is the employer and is responsible for 
the payment of social security and withheld taxes. 

In either event, it is necessary to maintain individual earn- 
ing records for each person paid. If the agency considers itself 
the employer of talent, it will use these earnings record cards 
to prepare quarterly social security and withholding tax re- 
turns. If the client is considered the employer, the agency will 
prepare a regular report to the client showing the accumulated 
earnings of each performer. At the same time the agency will 
issue a credit memo or pay the client to cover the total amount 
of taxes withheld from the talent paid by the agency, since the 
regular invoice to the client included the cost of radio talent at 
the gross amount. 

On the other hand, if the agency is considered the employer, 
the invoice to the client will show the gross cost of the talent 
plus the agency's cost of social security taxes. 







NO 1451 















A/sr I uc. 

I /A/s. 



Fig. 30. Radio Talent Voucher. 


If the talent and production costs for a radio broadcast are 
paid on a weekly basis, invoices are prepared and forwarded to 
client on a weekly basis. In other cases, invoices are issued only 



a a monthly basis to cover the talent and production costs of 
ich radio program for the month. The invoices are prepared 
y referring to the file containing the radio production order. 





Gxnrju, ooMPiWf 
1 tju M. Smith toimw 
Peoria, Illinois 

Dot* September JO, 

radio APygrngnto per mum * 


1 week at $25.0 0 per week 

4Jt Tax to eover OAB and Onenploy- 

B*nt Compensation 

mm. m .” lcst rgm?g 

Joe Helper at $150.00 per week 
1 week 

David Lorrey at $150.00 per week 
1 week 

Victor Sykes at $115.00 per week 
1 week 

Thomas Jones at |115.00 per week 
1 week 

Harry Edel at $50.00 per week 
1 week 

Irving Gable at $110.00 per week 
1 we ok 

Donald Dykes at $170.00 per week 
1 week 

A% Tax to cover OAB and Unemploy- 
ment Compensation 
Engineer at $50.00 per week 
1 week 

Musical Arrangements at $120.00 wk. 
1 week 

Transportation at $2.00 per week 
1 week 

Line Charges for Month of Sept. 

1 Air-Check - wk. of Sept. 2 - 
1 - 5-Mlnute Recording of Andrews 
Slaters - 9/J 



1 JO. 00 










- 5.Q0 


l afl. IlaAS 

2,750 00 

21 78 

150 00 
130 00 
115 00 

U5 00 
50 00 
no 00 

J 70 00 
?6 80 
50 00 
120 00 

25 00 
5 00 

5 00 


office copy 

6 , 099.67 

13 , CM* t»5 

Fig. 31. Invoice— Radio Talent. 

ie talent voucher and suppliers’ bills. Each of the items of 
)sts is listed on the invoice and to the total a commission is 
dded. (See Figure 31.) 

It is not altogether necessary that separate invoices be pre- 
ared covering the talent and production costs of radio shows. 


It will be remembered that in billing the time costs it was recom- 
mended that a separate invoice be prepared to cover each pro- 
gram appearing on each radio station. A summary invoice was 
then to be prepared showing the one-line information as follows: 

Radio Station Charges for the 

Month of $ 

On this summary invoice the talent costs may be shown im- 
mediately below the time costs. Where there are many radio 
station broadcasts which include reasonably large talent and 
production costs, such a summary invoice might be too lengthy. 
If so, it is possible to prepare more than one summary invoice 
by grouping only three, four or five radio stations on each sum- 
mary invoice with the details of the talent and production costs 

When the invoices are entered in the Sales and Cost Journal, 
the billing amounts and costs are distributed in the proper 
columns. Separate columns are provided for radio-time billing, 
radio-time costs, radio talent and production billing, radio tal- 
ent and production costs, and for social security tax charges. 
Through the regular monthly entry in the Sales and Cost 
Journal summary, the radio-time accounts-payable control ac- 
count, the radio talent and production accounts-payable con- 
trol account, and the accrued social security taxes for radio 
talent are credited. If the agency’s clients are all considered the 
employers of the talent, there will be no need for the social se- 
curity tax column since there will be no social security tax 
charges added to the invoices covering talent costs. The social 
security tax charges referred to are those charges paid by 
the employer. 


As payments are made to radio production suppliers, the date 
or check number is recorded on the radio production order form 
in the column provided for that purpose. 



The monthly total of checks issued to radio production sup- 
pliers and radio talent will be charged to the radio production 
and talent accounts payable. The monthly standard entry for 
the total of the checks above mentioned will be as follows: 

Debit — Radio Talent and Production Accounts Payable 
Credit — Cash in Bank 

—Social Security Tax Accruals, Radio Talent 
—Withholding Tax, Radio Talent 

The control account, accounts-payable radio talent and pro- 
duction, is credited with the cost of the items billed, and 
charged with the payments to talent and production suppliers. 
The balance in the radio talent and production accounts pay- 
able represents the cost of items that have been billed to clients 
but not yet paid. 

The detail of the accounts-payable control account is listed 
from the file of radio talent and production items by reviewing 
the radio production orders included therein. The items to be 
listed will be those included on billed radio production orders 
that have not been paid, and those paid but not billed. The 
latter are prepayments. Costs for each radio production order 
which have not been billed to clients and have not been paid 
for are listed. 

A Standard Journal entry should then be made each month 
for this amount, charging to unbilled radio talent and produc- 
tion costs (inventory) and crediting to radio talent and pro- 
duction accounts-payable control account. This entry should be 
reversed at the first of the following month. 

Through the methods described in this chapter it will be 
noted that proper internal control is provided so that all paid 
items are billed and, conversely, that all billed items are paid. 


A more complete record can be maintained by adopting the 
same procedures as outlined in the chapter “Advertising Mate- 


rials: Billing, Paying and Accounting.” The regular Inventory 
Control Journal is adopted for maintaining the accumulated 
costs by job number. A Voucher Register provides for accumu- 
lating costs due the suppliers and talent. In most cases, the 
procedures outlined in this chapter will suffice and thereby 
eliminate the necessity for maintaining the Inventory Control 
Journal and the Voucher Register. 


6. Outdoor Advertising: Billing, 
Paying and Accounting 

Outdoor advertising includes spectacular, painted and 
posted displays, the latter being printed or lithographed on 
large sheets of paper and pasted onto billboards. 

Companies in various cities own outdoor-advertising loca- 
tions and rent these locations to advertisers through advertis- 
ing agencies. The companies owning outdoor-advertising dis- 
play space are referred to as outdoor plants. Outdoor plants 
offer outdoor-advertising display space in units,' sometimes con- 
sisting of a number of locations in one city or in several. The 
outdoor plants have, for the most part, gathered statistics to 
show the number of people who pass each outdoor location. 
These figures and statistics are available to the advertising 
agency and to the advertiser. 

The National Outdoor Advertising Bureau is an organiza- 
tion owned by advertising agencies and operating for their ex- 
clusive benefit. This bureau will arrange for outdoor-advertis- 
ing space in one or more cities and will accumulate the space 
required to meet an advertiser’s specific need. Some advertisers 
are limited to advertising in certain states. This applies to 
liquors, beer and wine. Other advertisers have distribution only 
in certain states or cities and must therefore limit their adver- 
tising to the locations in which the product is available. So 
the National Outdoor Advertising Bureau can help the adver- 
tiser and the agency to select the most desirable locations for 
advertising a particular product. 

The Bureau will also contract with the outdoor plants, issue 
the orders for the posting, check the appearance of the adver- 
tising and bill the agency. When an agency operates through 

OUTDOOR advertising: accounting 

the National Outdoor Advertising Bureau, the Bureau actually 
performs nearly all the clerical work and relieves the agency of 
these details; but of course the Bureau makes a charge for this 
service, the charge equaling three and two-third percent of the 
cost of the outdoor space. 

In discussing the billing and paying procedures, no differen- 
tiation will be made as to whether the agency deals directly with 
the outdoor plant or through the National Outdoor Advertis- 
ing Bureau. If the agency deals through the Bureau, the Bureau 
may be looked upon as one outdoor plant. Then the agency 
issues one order to the Bureau, makes one payment to the Bu- 
reau, prepares one invoice to the client covering the charges 
made by the Bureau for all outdoor-advertising locations. If an 
agency deals with separate outdoor plants, the functions will be 
duplicated as many times as there are plants to deal with. 


A separate poster contract is issued by the agency to each 
outdoor plant from which space is purchased. (See Figure 32.) 
The example of the poster contract shown is for regular poster 
space. It is not intended to be used to cover spectacular or 
painted displays. Usually each spectacular display or painted 
outdoor-advertising location requires a special contract em- 
bodying the terms and conditions applying. The outdoor-poster 
contract is to be typed in quadruplicate, the copies to be used 
as follows: 

Original — sent to outdoor plant. 

Duplicate — sent to outdoor plant to be returned with plant 
owner’s signature signifying his acceptance of the 

Triplicate — to be filed in the accounting department for use 
as described later. 

Quadruplicate — to be filed in the outdoor department of the ad- 
vertising agency; or, if the agency has no such 
department, then all these quadruplicates are 
filed together by the space buyer to be used for 



Contracts generally cover a period of one year, but are also 
issued for shorter periods. The contract form provides space 
for showing the number of billboards to be used each month 
in the contract period, and the name of each month is to be 
listed in the left-hand column under the heading “Posting 


Fig. 32. Poster Contract. 

OUTDOOR advertising: accounting 

Dates/' The heading “Allotment" under which there appear the 
subheads “Reg/' and “111.” is to be used to show the allotment 
of regular and illuminated display boards for each month in 
the contract period. The monthly cost (to the advertiser) is 



To D ‘“ 

• Advertiser 


Shipping Address 








MON Til 






DAT fc 






Thu Contract it >ub)ect to cancellation (or any month or 
nondu by notifying you in writing (C (90) daya prior 
to a poxing date 

•ooKKtcfiNc core 

Fig. 33. Poster Contract— Bookkeeping Copy. 



shown opposite each month's heading. No copies of the con- 
tract are to be distributed to the agency's accounting department 
until the outdoor plant has returned the acceptance copy in- 
dicating that the contract is in force. 

When the plant owner returns the acceptance copy of the 
contract, the space buyer or outdoor department head should 
ascertain whether the outdoor plant has accepted the contract 
in its entirety or, if not, what changes have been made. Where 
changes are made in the number or cost of outdoor displays, 
corrected figures must be noted on all copies of the contract. 
One copy of the contract is forwarded to the accounting depart- 
ment to be used for billing and paying the advertising. The 
bookkeeping copy of the outdoor-poster contract is displayed 
in Figure 33. Note that this copy of the contract provides space 
for entering information relative to billing and paying. 


Each month the bookkeeping department is to examine the 
file of bookkeeping copies of poster contracts. All displays that 
are posted during the current month should be billed within 
that month and the billing should be sufficiently in advance of 
the close of the month to permit time for the client to pay the 
bill to the agency before the last day of the month. The agency 
does not pay the outdoor plant until after the last day of the 
month of posting. Consequently, the first payment to be made 
by the agency to an outdoor plant will be in the month subse- 
quent to that in which the agency sent the invoice to the client, 
and all payments from the client will have been received by the 
agency before it makes payment to the outdoor plant. 

Before typing the invoice to the client, it is necessary to com- 
pute the cost to the agency of each month's outdoor advertising 
and to enter this figure on the accounting department copy of 
the contract. The figure should be entered opposite the proper 
month heading, in the column headed "Net." The invoice is 
typed by reference to the poster contracts. The typist merely 
lists the name of each city in which posting appears, the billing 

OUTDOOR advertising: accounting 

price of the month's posting in each such city, and the date on 
which the advertising was posted. (See Figure 34.) 

The office copy of the invoice is made about an inch wider 
than the copies which are sent to the advertiser. On the right- 


f 7374 


Date February 28 

To Ron# /wall Traadtng Conoorn 
10058 N.E. South Streat W. 

Toorvarrl 1 la, Stataa 

outdoor apvertisiko« 

Chicago. Illinois 
Das. 31 showing 

gTU*on, Illinois 
Jan. 6 showing 

Oak Park, Illinois 
Jan. 6 showing 

Aurora, Illinois 
Jan. 2 showing 

Elgin, Illinois 
Dae. 30 showing 

Ullwauka, Wlsa. 
Jan. 10 showing 

Ennosha, Wise . 

Jan. 1 showing 

Waukegan, 111. 

Jan. 2 showing 

80 rag. SO ill. 

4 rag. 3 111. 
8 rag. 8 111. 

5 rag. 2 111. 

3 rag. 2 ill. 
• rag. 7 ill. 

4 rag. 2 ill. 



4,000 00 

iva 17 

350 00 

135 92 
100 63 
*16 67 

110 00 

135 92 

South pond, Ind. 

January showing 3 rag. 2 ill. 

4 - 

4 - 



| 6,610.10 

no 9? 

5,508 43 



Fig. 34. Invoice— Outdoor. 

hand margin of the office copy of the invoice, the agency's cost 
of the advertising space in each city is typed. Where clients re- 
quire a complete listing showing the location of each outdoor 
display, the agency can attach a copy of the bills received from 



outdoor plants, since these bills, which can be secured in dupli- 
cate, show the address at which each outdoor display sign is 
located. When the invoice has been typed, the date and the 
invoice number are entered on the bookkeeping copy of the con- 
tract in the space provided for this information. 


When bills are received from outdoor plants, they are to be 
audited against bookkeeping copies of poster contracts. The 
billing price and the agency’s net cost must agree with the figures 
for these items as shown on the poster contract. After this verifi- 
cation has been made, checks are prepared for payment of out- 
door bills. The check numbers and dates are recorded on the 
bookkeeping copies of poster contracts in the space provided 
for that purpose. 


The office copies of the agency’s invoices for outdoor space 
show the total billing price and the agency’s net cost. These 
sales and costs are entered in the Sales and Cost Journal in the 
same manner as newspaper, magazine or radio invoices are en- 
tered, that is, both the billing price and the cost of each invoice 
are entered. From this Journal the following entries are car- 
ried to the General Ledger: 

C harge — Accounts Receivable. 

Credit — Outdoor Sales (with the total sales price of all out- 
door advertising invoiced to clients). 

Charge — Cost of Outdoor Advertising. 

Credit — Accounts Payable, Outdoor (with the total cost of 
outdoor space billed). 

When checks are issued in payment of outdoor space, the 
total of such payments is charged to the General Ledger con- 
trol account “accounts payable, outdoor.’’ The balance in the 
accounts-payable control account represents the unpaid items. 
A list of billed-but-unpaid items as taken from the poster con- 
tracts is prepared by examining these contracts and listing the 

OUTDOOR advertising: accounting 

items which are noted to have been billed but which have not 
been paid. By using the method described, outdoor accounts- 
payable account is credited only after a client has been billed. 

This system of internal control assures the billing of all items 
paid and the paying of all items billed. The accounts-payable 
control account is credited with the cost of items billed and is 
charged with the payments made to outdoor plants. The bal- 
ance in the account must represent the billed and unpaid items 
less the paid and unbilled items. The detailed list of unpaid- 
and-unbilled items as taken from bookkeeping copies of poster 
contracts must equal the total in the General Ledger control 
account “accounts payable, outdoor/’ 

If the detailed list as taken from the outdoor contracts in- 
cludes any item that has been paid for but has not been billed 
to a client, such an item should be disposed of through proper 
billing to the client. Likewise, the financial management of an 
agency will want to determine the reason for withholding pay- 
ment of billed items where the list discloses unpaid items of 
long standing. 


7. Advertising Materials: Billing, 
Paying and Accounting 

Less than ten percent of the cost of publication advertising 
is normally expended for advertising materials (art work, 
photography, engravings, electros, typography, stereos, mats, 
photostats, etc.) . The job of specifying and buying these adver- 
tising materials is a historic function of the advertising agency. 
While this function in terms of revenue is one of the smallest 
of the agency operations, there is none other that causes so 
much difficulty and friction between the agency and the adver- 

Advertising space is sold at established rates and there can 
be no dispute as to whether an advertisement occupies a page, 
a half-page or ten lines. On the other hand, whether it is neces- 
sary to employ a specific artist to make a painting, whether it 
is necessary to buy the services of the “best’" photographer, 
whether a set of four-color engravings registers, whether it is 
necessary to reset the type, are often questions of judgment. 

Suppliers of advertising materials such as these mentioned 
have no fixed prices for each specific job since such jobs are 
made to measure. 

The magazine or newspaper advertisement is specified to ap- 
pear on a certain date, and since the paper is published on that 
date, the advertisement either appears on that date or it doesn't 
appear at all. There can be no quarrel as to whether or not the 
advertisement was published on the right date. But advertising 
materials are needed to meet certain deadlines, and the date on 
which each piece of material is required depends on when other 
materials are received. Each is a link in a chain. The whole must 


be completed before the final needed plates or other materials 
can be forwarded to the publication. 

It should be remembered that to print one advertisement, it 
may be necessary to buy ten or fifteen different advertising ma- 
terials, each from a different supplier. This gives one some idea 
of the immense mass of detail that must be handled by the 
agency before the final plates can be sent off to the publisher. 


A system for handling the ordering, billing and paying for ad- 
vertising materials must be much more than an accounting sys- 
tem that simply produces invoices to clients, checks to suppliers, 
and bookkeeping entries. It must be a system that will: 

1. Assure the receipt of the necessary advertising materials 
on the dates required. 

2. Produce a perpetual record to show at all times the mate- 
rials that have been purchased for each specific job and 
for each specific client. 

3. Expedite the prompt preparation of invoices to adver- 
tisers (clients) in such a manner that all materials pur- 
chased in connection with the preparation of one adver- 
tisement may be grouped together so that the advertiser 
can know exactly what he is paying for. 

4. Control the transactions completely so that every item 
purchased in connection with the preparation of an ad- 
vertisement is finally billed to a client. 

Advertising materials are purchased specifically for the prepa- 
ration of a client’s advertisement. These materials are always 
to be billed to clients. The agency purchases the advertising 
materials piecemeal and usually does not invoice the client until 
all the materials for one job have been received and that job 
has been completed. From this it will be seen that often the 
agency expends its own funds purchasing materials to be used 
for clients' advertising and that these sums are not recovered 
until an invoice has been prepared after each job is completed. 



In some cases, this requires as long as three, four or five months. 

Some agencies erroneously charge the cost of advertising ma- 
terials to an account called “Purchases/' This purchase account 
is then considered to represent the cost of the advertising mate- 
rials sold; but in truth it does not, since it represents the cost of 
all items purchased, only some of which have been billed to 
clients. It is important that all advertising materials purchased 
be charged to an account that should be called “Unbilled Ad- 
vertising Materials." 

As items are invoiced to clients, the cost of the items invoiced 
is credited to this account so that the balance in the account 
always represents only the unbilled items. This figure tells man- 
agement how much the agency has invested in materials 
which have not yet been billed to clients. The system of charg- 
ing these purchases to an inventory account (Unbilled Adver- 
tising Materials) also allows the agency to have full control 
over the transactions, as will be developed later. Usually, an 
agency that bills advertising materials only upon completion 
of jobs will carry an inventory of “unbilled advertising mate- 
rials" approximating one twelfth to one fourth of its annual 
sales of advertising materials. 

In the course of the development of the advertising-agency 
business, a number of different accounting systems have been 
developed by agencies and accountants in an attempt to pro 
vide for the handling of the purchasing and billing of advertis- 
ing materials. 

These systems usually are extremely cumbersome in opera- 
tion because every such system attempts to record the separate 
purchases in some formal book such as a Purchase Register. 
Every such system that has been developed, with the exception 
of the one that will be described here, provides for accumulating 
the bills from suppliers in job envelopes or other files and pro- 
vides for the actual taking of an inventory each month or period 
in order to secure a list of the unbilled items that have been 
purchased by the agency. 

Most of the systems do not provide for properly supporting 
1 9 ° 


invoices to clients, who should be furnished with evidence to 
support each charge. The advertiser receives a copy of every 
advertisement that appears in a newspaper or magazine, but he 
receives no copy of the type that was set by the typesetter; he re- 
ceives no copy of the four-color engraving; he may never see 
the photostats or the art work; consequently, it is important to 
support the charges for such materials by evidence that will 
clearly indicate that the agency’s charge is proper. 

The contact man in conference with the advertiser develops 
an idea for an advertisement or campaign. This idea may be 
illustrated by rough sketches and a copy theme. But when the 
advertiser formally approves the production of advertising, the 
contact man issues a production order specifying the details of 
the advertisement and the name of the publications in which 
it is to appear. 

The job of securing the advertising materials is, in most ad- 
vertising agencies, delegated to the production manager and 
the art director. The art director is responsible for purchasing 
art and photography, and the production manager is respon- 
sible for securing the other materials. 


A production order is a formalized memo which describes the 
advertisement to be produced. It should list the advertising ma- 
terials that are required and the essential dates on which each 
material or service is to be completed. (See Figure 35.) It is im- 
portant to stress the fact that a little time used to prepare 
properly a production order will often save much time later on. 

If the production order covers the preparation of an adver- 
tisement which is to appear in a magazine or newspaper, the 
order should not only describe the advertisement and list the 
materials and services required, but should also state the date 
on which the final materials must be in the hands of the pub- 

The form and content of production orders depend some- 
what on the size and organization of the particular advertising 

19 1 


agency. The larger the agency, the more detailed and complete 
the order needs to be, since in smaller agencies the various de- 
partment heads and executives are likely to have much more fre- 
quent and intimate contact with one another than they do in 


Fig. 35. Production Order— Advertising Materials. 


larger agencies. At the time that the production order is pre- 
pared, it is often necessary for contact men to consult with art 
directors and production department managers in order to 
ascertain just what materials are required and when they can 
be secured. 

In some of the larger advertising agencies, production 
orders are prepared by traffic departments. In this situation, 
contact men prepare memos which are sent to the traffic depart- 
ment, which department then prepares production orders. It 
is customary practice for an agency to send one copy of each 
production order to each department of the agency that is in- 
volved. This usually includes the following: art department, 
copy department, production department, contact department, 
and control desk or traffic department. 

As soon as a department receives a production order, the 
head of the department files the order in a binder. These bind- 
ers are usually subdivided so that all orders pertaining to one 
client are filed together. The work of carrying out the instruc- 
tions contained on the production order is assigned to one indi- 
vidual within the department and proceeds from that point to 
completion. When the work of a department is completed, the 
department’s copy of the production order, with the completed 
material, is returned to the control desk or traffic department. 
Notations are made on the traffic department copy of the pro- 
duction order and the work is forwarded to the proper depart- 

At regular intervals, not more than a week apart, the control 
desk or traffic department examines its files of production orders 
to determine what work or service was due to be completed that 
has not yet been finished. Tardy work reports (see Figure 36) 
are prepared to cover these cases. One copy of each tardy work 
report is forwarded to the proper authority within the agency; 
a second copy is forwarded to the department responsible for 
the delay. 

Instead of reviewing the control desk or traffic department 
copies of production orders periodically, some agencies file the 


Vfljum Jhaffic. 



Fig. 36. Tardy Work Report. 



orders in a tickler file under the date on which the first material 
or service is due to be completed. These orders are then taken 
from the file on the proper date and the department whose work 
is due is followed up appropriately. If the work is completed 
before the completion date, the order is found in the file under 
the date on which the work is due. It is removed to a later date 
representing the date on which the next service or material on 
the particular order is due to be completed. 

When the production department or manager receives a pro- 
duction order, it is necessary for the department to prepare a 
time schedule of its own, since the production department must 
usually purchase many different materials. The dates for re- 
ceiving each one of these materials are not specified independ- 
ently on the production order, but rather the date on which the 
final engravings, zinc or half-tone, are required is scheduled as 
the essential date for completing the work. 

The production department manager of course will know 
what separate materials are required before the final four-color 
engravings or other finished plates or mats can be made. After 
examining the production order, the production department 
manager will determine from whom each of the items should 
be purchased and he will issue purchase orders to cover each 
of the materials. While a production order is a description of 
the materials and services that are required to complete one 
advertisement, that advertisement may have to appear also in 
several publications not all of which have the same page size. 

Therefore, in their final form, the plates or mats from which 
the advertisements are to be printed must be secured in several 
sizes. It is customary to give a number to each different size ad- 
vertisement that is to be used. While several different sizes of 
the same advertisement may be covered by one production 
order, the production order should specify the various sizes in 
which the finished plates are to be made and to what magazines 
or papers those plates are to be sent. 

The advertisement in each of its sizes would carry a separate 
ad number. Sometimes agencies suffix or prefix a designation 

J 95 


to the production-order number to indicate different sizes of 
the same advertisement. For example, ad J101A may represent 
an advertisement in one size; ad JfioiB may represent the same 
advertisement in another size. 


When the production or art departments wish to order mate- 
rials or services from outside suppliers, they issue purchase 
orders to the suppliers. Some agencies have separate pur- 
chase order forms for each type of material such as art, engrav- 
ings, type, printing and the like. Two types of purchase orders 
will suffice for most agencies— one to cover the purchase of ad- 
vertising materials exclusive of art, and the other to cover pur- 
chases of art. (See Figures 37 and 38.) 


N? 3351 p 


IMPORTANT — All Invoice! mull be billed in Triplicate and *ent to us promptly 


Our order number muit appear on ell Invoices, papers and pacteges. 






ArarrM B 1B | Uabticv 


naml m 4t>uiimr*c « fncy m* 


Fie. 37. Purchase Order— Advertising Materials. 


It is important that each purchase order contain reference to 
the production-order number against which the purchase order 
is issued. Sometimes production-order number is called job 
number. At least three copies of each purchase order, an origi- 
nal and two carbons, are required. The original is forwarded 
to the supplier, the duplicate is retained by the production 
department for reference and is attached later to the supplier’s 
bill, and the triplicate is forwarded to the accounting depart- 
ment so that the accounting department may be apprised of 
the commitments which the agency has made. Usually, pur- 
chase orders specify that all bills from suppliers are to be sub- 
mitted in triplicate and that each bill must carry the production- 
order number of the job as shown on the purchase order; that, 


N? 3879 a 


IMPORTANT — Alt invoices mutt be billed in Triplicate and tent to os promptly Our order number mutt appear on eiJ 
invoices, papers, and packages. 

Please enter our order for. Time wanted 


Nates of auvTHriMvr agf*cy Bv - 

Fig. 38. Purchase Order— Art. 



in addition, each supplier's bill must contain the caption of 
the advertisement and sufficient description to identify com- 
pletely the materials or services covered by the bill. 


Two sets of files are established— one called “Billing File" and 
the other called “Paying File." The “Billing File" consists of 
file folders arranged by client and job number. The “Paying 
File" consists of a set of file folders arranged by supplier name. 
All of the various documents relating to billing, paying and 
accounting for advertising materials find their way into these 
two sets of files which are maintained in the accounting depart- 


Suppliers' bills are to be furnished to the agbncy in triplicate. 
Incidentally, there is no great difficulty in securing triplicate 
copies of bills if suppliers are notified that this is a rigid require- 
ment of the agency. When the three copies of the suppliers' bills 
are received they are to be stamped with a rubber stamp for 
each copy. The first copy is to be labeled “Billing File Copy," 
the second copy “Paying File Copy" and the third copy '‘Job 
Envelope Copy." After the invoices are approved for receipt 
and quality of merchandise, the billing and paying copies are 
forwarded to the accounting department, and the job envelope 
copy is placed in the job envelope that is maintained in the pro- 
duction department. 

The billing copy is filed in the accounting department Bill- 
ing File under the proper job number. The paying copy is filed 
in the accounting department Paying File in the folder bearing 
the supplier's name. If a supplier furnished only one or two 
copies of a bill instead of three copies, which are required to 
maintain the accounting system described, a dummy copy or 
copies must be prepared (see Figure 39) , and the supplier must 
be notified that in the future three copies of each bill are to be 
furnished, since the preparation of dummy copies of invoices 


is an emergency method and is not recommended for repeated 


Some agencies produce art work, which is billed to clients, 
maintaining an artist or perhaps an entire art studio that is 
operated to produce finished art work or comprehensive lay- 
outs that are to be billed to clients. Where an agency charges 
clients for art work produced within the agency, it is necessary 


Supplier' 3 Name 

P. 0. // 

Date — — . 


Inv. — 

Client — — . 

Fig. 39. Dummy Bill— Advertising Materials. 

to set up methods which will account for the transactions in the 
art department to show management how profitable the depart- 
ment is. In addition, it is necessary to build up records from 
which the art work can be billed. 

The detail of the art department accounting records and 
methods is described in a separate chapter. It suffices here to say 
that some method must be used to record the cost or billing 
price of the completed art work as a part of the cost of all of 
the advertising materials entering into a job. In the system de- 
scribed in the chapter “Accounting for Art Work Performed 



by the Agency/' the art department prepares an invoice when 
any piece of art work is completed. Where this system is oper- 
ated, the invoice is to be handled exactly the same as a supplier's 
bill. It is to be furnished in triplicate and the three copies are 
to be filed in the same manner described for filing suppliers' 


Transactions relating to the securing of advertising materials 
and services are not all covered by purchases which are made 
directly in connection with the preparation of an advertise- 
ment or campaign. Accounting for production materials in- 
volves not only bills from suppliers, but also must include cer- 
tain other transactions that eventually become part of the 
production picture. 

One such transaction is in connection with items which are 
originally purchased for the agency’s own use, but later become 
associated with the production of an advertisement. Such items 
include postage, express, long distance telephone charges, sta- 
tionery and traveling costs. 

It is not infrequent for an agency to prepay parcel post and 
express charges in connection with the transmission of adver- 
tising materials to advertisers and publishers. It is not uncom- 
mon for agencies to discuss matters relating to advertisements 
with advertisers and suppliers in which the time element de- 
mands the use of telegraph or long distance telephone services. 
It is not uncommon for certain of the agency's personnel to 
travel in connection with the production of advertising. 

Such items as these are properly part of the production ex- 
pense, and the costs must eventually find their way into the pro- 
duction accounting system. The simplest manner of handling 
this type of situation is by the preparation of an expense-billing 
authorization. (See Figure 40.) 

Expense-billing authorizations are prepared whenever the 
agency has expended funds in connection with the development 
of an advertisement of a client where such expenditures nor- 


mally would be charged to the agency's own overhead accounts. 
The expense-billing authorization form should be made in 
triplicate and must fully describe the materials or services that 
have been used in connection with the production of the adver- 
tising for the advertiser. It must also specify the date the item 
was purchased, the name of the supplier and the sum expended. 

Fig. 40. Expense Billing Authorization. 

The expense to be billed must be approved by an authorized 
employee of the agency. It should contain sufficient information 
for the advertiser to understand the basis of the charge and its 
authenticity in relation to the production of the particular ad- 
vertisement involved. The expense-billing authorization must 
always indicate the production-order number against which the 
item is to be charged. 



When the three approved copies of expense-billing author- 
izations are received by the accounting department, one copy is 
sent to the production department and filed in the proper job 
envelope and kept there. One copy is inserted in the billing- 
file folder, that is, the file folder bearing the production-order 
number corresponding to that shown on the expense-billing 
authorization. The third copy of the expense-billing authoriza- 
tion is handled in the same manner as the paying copies of sup- 
pliers' bills; that is, all paying copies of expense-billing author- 
izations are filed in one file folder labeled “Expense Billing 
Authorizations’* in the paying file, just as though the expense- 
billing authorizations represented one supplier. 

When one wants to determine what items of expense have 
been charged to clients in connection with the production of 
advertising, such charges are to be found in the paying-file 
folder indexed as “Expense Billing Authorizations.” If one 
wishes to determine what expenses the agency has included as 
chargeable against the production of a particular advertisement, 
one will find such expense charges contained in the billing-file 
folder bearing the proper production-order number. 


Frequently, advertising materials which are purchased in 
connection with the production of a particular client’s adver- 
tising cannot, for one reason or another, be billed to that client. 
Such a circumstance could exist in connection with errors made 
within the agency involving incorrect specifications or the im- 
proper purchase of materials. 

When this condition occurs, the agency has already purchased 
the service or material and has received or will receive a bill 
from the supplier to cover the cost. The supplier will have to be 
paid for the item regardless of the fact that it cannot be billed 
to the agency's client. Consequently, one copy of the bill will 
find its way into the billing-file folder containing the produc- 
tion-order number involved. The other copy of the bill (paying 
copy) will find its way into the proper supplier’s paying file. 


It then becomes necessary to delete from or credit to the par- 
ticular job number that cost which is to be absorbed by the 
agency. The simplest manner for accomplishing this is through 
the preparation of a write-off authorization form. (See Figure 
41.) Three copies of each write-off authorization are made. 

Fig. 41. Write-off Authorization. 

One is called “billing copy/' another “paying copy,” and the 
third copy is filed in the production department job envelope. 

Needless to say, the write-off authorization must specify the 
production-order number, the client's name, the date and the 
amount. It must be authorized and must contain a description 
of the item and the name of the agency's overhead expense ac- 
count to be charged. Two copies of the write-off authorization 
are forwarded to the accounting department. The two copies are 
handled exactly in the same manner as the expense-billing au- 



thorizations are handled, namely, the billing copy of the form 
is filed in the billing-file folder bearing the corresponding pro- 
duction-order number; the paying copy is filed in the paying 
files in a file folder called “Production Write-off Authoriza- 

If one wishes to determine what advertising materials or serv- 
ices were purchased in connection with the production of 
client's advertising and were later absorbed by the agency as its 
own expense, a complete history of such transactions will be 
found in the paying-file folder called “Production Write-off 

If one wishes to determine what items were purchased for a 
specific job, but have been absorbed by the agency as its own 
expense instead of being billed to the client, one will find such 
absorptions by looking in the proper billing-file folder (the 
one bearing the production-order number which the person is 
interested in) and by examining the write-off authorizations that 
are contained in that file folder. 


Occasionally materials or services when purchased are in- 
tended to be used in connection with the production of a speci- 
fied advertisement, but later it may be discovered that the 
material or service was not used for the job as originally desig- 
nated, but rather for a different job or advertisement. Sometimes 
a part of the material may be used for one job and the balance 
for another. When this condition occurs, it becomes necessary 
to transfer part or all of the cost of the material or service from 
one job or production-order number to another. The simplest 
manner of transferring the cost from one production-order 
number to another is to issue a transfer authorization referred to 
as “mechanical transfer.” (See Figure 42.) 

Three copies of the form are made. The transfer form must 
be approved by someone in authority to whom such responsi- 
bility has been delegated. On the transfer form, the production- 
order number to be charged and the name of the client to be 


charged, the number of the production order to be credited and 
the name of the client to be credited are written. The amount 
of money involved in the transfer is shown and the form should 
contain a complete explanation for the transfer. 

Fic. 42. Mechanical Transfer. 

It is quite possible that an item of cost may be transferred 
from one production-order number to a different production- 
order number involving the same client. The explanations given 
on these job transfers are particularly important when only part 
of an item of cost is transferred from one job to another. The 
reason for this will be seen when the method of billing the 
client is discussed. The three copies of the mechanical transfer 
are sent to the accounting department. 

One copy is filed in the billing file bearing the production- 
order number of the job to be charged (the job to which the 



charge is transferred). The second copy is filed in the billing- 
file folder bearing the production-order number of the job to 
be credited (the job from which the cost is transferred) . The 
third copy of the mechanical transfer is filed in a memo folder 
used for verification only. If there is any question as to whether 
a charge has been transferred from one job to another, the 
answer may be found by examining the memo file. 


For the purposes of financial control, it is necessary to know 
the total of the unbilled accumulated costs of advertising ma- 
terials and services purchased by the agency in connection with 
each client's advertising. It is also necessary to know what the 
total unbilled advertising materials and services consist of. 

Since it is desirable to accumulate the costs of advertis- 
ing materials and services purchased in connection with the 
production of each advertisement (particularly for billing pur- 
poses), production orders are issued to cover each such adver- 
tisement. All purchases made for each production order are 
then accumulated under that production-order number. The 
billing file previously described is maintained for this purpose. 
Each file folder represents a production-order number and con- 
tains the following: 

1. A copy of each bill received from a supplier (including 
bills for art work produced by the agency) which refeis 
to the particular production-order number involved. 

2. A copy of each expense-billing authorization pertaining 
to the production-order number. 

3. A copy of each production write-off authorization affect- 
ing the particular production-order number. 

4. A copy of each mechanical transfer affecting the produc- 
tion-order number. 

In other words, the billing-file folder for each production 
order contains original documents (bills, expense-billing au- 
thorizations, write-off authorizations and mechanical transfers) 


completely explaining the transactions that have taken place in 
connection with the securing of materials and services for the 
particular job. 

At the end of each month, the documents in the billing fold- 
ers are listed and totaled on an adding machine. The adding- 
machine tape listing the costs of all of the items in one folder 
is stapled to the documents contained in the folder. When this 
process has been completed, each billing folder will include an 
adding-machine tape stapled to all of the documents contained 
in the folder. A grand total is now taken by listing the totals as 
shown on the adding-machine tapes contained in each of the 
separate folders. This grand total represents the sum of the 
purchases made for the month, plus the expense-billing au- 
thorizations, less the write-off authorizations. 

The paying files are now referred to. It will be remembered 
that one file folder was set up for each supplier and that, in 
addition, file folders are required for agency's own art charges, 
expense-billing authorizations and write-off authorizations. The 
copies of bills contained in each supplier's folder are listed on 
an adding machine and the adding-machine tape is stapled to 
the invoices contained in each such folder. Similar adding- 
machine tapes are made from the material contained in the 
Expense Billing Authorization folder and the Write-off Au- 
thorization folder. The totals contained on the tapes in the 
suppliers' folders are now added and this total (the sum of the 
amounts due to each supplier, plus the expense-billing authori- 
zations and less the write-off authorizations) must balance with 
the grand total which was taken from the billing folders. 

The material contained in the billing folders will be identical 
with that contained in the paying files, since carbon copies of 
the same documents are used to make both sets of files. The dif- 
ference between the two files is simply that the billing file is 
arranged according to client and production-order number, and 
the paying file is arranged alphabetically by supplier. In the 
event that the two sets of files are out of balance with each 
other, it is a simple matter to find the difference since the ma- 



terial in the paying files may easily be re-sorted into client and 
production-order number sequence, after which it may be com- 
pared with the material contained in the billing files. 


The Inventory Control Journal is the one record book that is 
used to accumulate the job costs and to record the perpetual 
inventory of unbilled advertising materials. In addition, the 
figures developed in this record prove the accuracy of the 
amounts due to suppliers as recorded in the Voucher Register, 
the cost of the items billed to clients as recorded in the Sales 
and Cost Journal, and the cost of the unbilled advertising ma- 
terials purchased by the agency for each job. This last figure 
is represented by the billing file containing suppliers’ bills, ex- 
pense-billing authorizations, write-off authorizations and job 
transfers. This all-important record book, when properly used, 
furnishes the following information without need for analysis, 
reclassification, accumulation of figures, etc.: 

1. For each job, the total purchases, the total cost of the 
items billed and the unbilled balance, arranged so as to 
show the total cost accumulated in each prior month. 

2. For each client, the total purchases of advertising ma- 
terials incurred each month, the total cost of the items 
billed each month and the unbilled balance. 

3. For the agency as a whole, the total purchases of adver- 
tising materials, the total cost of the billing and the un- 
billed balance for each month. 

A separate page is to be provided for recording the items per- 
taining to each client served. In addition, one page is used to 
summarize the transactions by accumulating the totals contained 
on each client’s sheet. 


Entries made to the Inventory Control Journal consist of 
monthly totals representing the cost accumulated for a month 


in connection with a particular job. The Inventory Control 
Journal sheet for a particular client provides for listing job 
numbers on the left-hand side of the sheet. Opposite each such 
job number and under the proper month heading in the “Cost” 
column, the grand total of the accumulated costs incurred in 
connection with each such job is posted by reference to the bill- 
ing-file folders containing the detailed material and an adding- 
machine tape listing each item and showing the grand total 
accumulated cost for the month. When such costs have been 
entered, they will appear as follows: 


Job No. Cost Billed Inv. 

862 $1 15.00 

863 20.00 

864 5.00 


Cost Billed Inv. 

After the costs in connection with each job have been accu- 
mulated and entered, the billing folders are returned to the file. 
Copies of bills for the succeeding month are inserted in the same 
file folders. Adding-machine tapes are taken at the end of the 
next month of all of the loose material contained in the file 
(the previous month’s documents were stapled together to 
adding-machine tapes) . The tapes from the billing folders are 
balanced with the tapes from the paying folders as described 
previously. The second month’s purchases are entered in the 
Inventory Control Journal as follows: 

(First Month) (Second Month) 



Job No. Cost 






862 $115.00 

863 20.00 

864 5.00 




$ 10.00 






It will be noted from the example just given that the costs of 
each job accumulate from month to month and that the accu- 
mulated costs are extended into the inventory column. 


To prepare an invoice for a client, the billing clerk procures 
the billing-file folder containing the job number to be billed. 
The current month's documents contained in the folder (copies 
of suppliers* bills, expense-billing authorizations, write-off au- 
thorizations and job transfers) must first be totaled and entered 
in the Inventory Control Journal. This total added to the total 
of the previous month’s costs must equal the grand total of 
all of the material contained in the folder. The invoice for the 
client is typed and the total cost of the items billed is entered in 
the Inventory Control Journal opposite the proper job number 
in the “Billed” column under the proper month heading. An 
example of these entries is shown below: 






Cost Billed 


Cost Billed 





862 ” 

$i 15.00 

$ 115.00 

$ 10.00 

$ 125.00 

$ 15.00 

$ 140.00 

S — 0 — 








— 0 — 







— 0 — 


One will note from the above that, where a job is billed and 
the cost of the billing is entered, the balance or inventory is 
zero. Consequently, the inventory column for the current month 
always shows the unbilled accumulated costs for each job so that, 
for the sheet representing one client’s advertising materials, 
the total of the inventory column shows the amount expended 
by the agency for the client which is yet to be billed. 


The Voucher Register, illustrated in Figure 43, is used to 
summarize the purchases made from each supplier, to record the 
amount due to that supplier, the amount paid to the supplier 


and the balance due, if any. When the proper entries are made 
in this account book, the following monthly information is 

1. For each supplier, the total purchases, payments and bal- 
ance due. 

2. For the agency, the total purchases, payments and bal- 
ance due. 

Production and Art Voucher Register 


| JA N U A R V | 




















Fig. 43. Voucher Register. 

At the end of each month, the bills from suppliers found in 
the paying files are totaled and the total purchases from each 
supplier are then entered in the Voucher Register simply by 
posting the total purchases made from a supplier opposite that 
supplier’s name shown on a page in the Voucher Register; the 
total of course is entered in the “Cost” column under the proper 
month heading. 

When payments are made to suppliers, the total of each pay- 
ment is entered opposite the supplier’s name in the Voucher 
Register in the “Paid” column under the month in which the 
payment is made. By deducting the payments made from the 
total purchases, the balance due any one supplier is developed 
and is extended into the column headed “Balance.” The total 



of this column represents the sum total of the accounts payable 
due to suppliers of advertising materials. This total must balance 
with the General Ledger total carried in the accounts-payable 
control account. 

In addition to the names of the various suppliers listed in 
the Voucher Register, Figure 43, there will appear the following 
three items not representing actual outside suppliers: 

1. Agency’s own art charges. 

2. Expense-billing authorizations. 

3. Production write-offs. 

In a previous section of this chapter, it was mentioned that 
file folders are required in the paying file for the above listed 
three types of items. Adding-machine tape totals of the costs 
included in the folders for the agency’s own art charges, expense- 
billing authorizations, and production write-offs are entered in 
the cost column of the Voucher Register in the same manner as 
the total of supplier's monthly charges. Accordingly, the total 
monthly amounts for the agency’s own art charges will be en- 
tered in the cost column opposite the wording “Agency’s Own 
Art Charges,” the total of the expense-billing authorizations for 
each month will be entered opposite the wording “Expense 
Billing Authorizations,” and the total of the production write- 
offs will be entered in the cost column opposite the wording 
“Production Write-offs.” The amount entered for production 
write-offs will be recorded in red since this total represents a 
charge to accounts payable and a corresponding credit to un- 
billed advertising materials. 

The total of the cost column in the Voucher Register must 
equal the total of the cost column in the Inventory Control 
Journal. The total of the costs incurred each month as repre- 
sented by the total in the Voucher Register is charged to un- 
billed advertising materials and credited to accounts payable, 
advertising materials. 

The accounts-payable control account for advertising ma- 
terials will include a credit for the agency’s own art charges and 


expense-billing authorizations, and a charge for production 
write-offs. Therefore, it is necessary to adjust the accounts-pay- 
able account with regard to the previously mentioned three 
items. The expense-billing authorizations (representing a charge 
to inventory) contained in the paying file must be analyzed each 
month in order to determine the various expense accounts to 
be credited. Likewise, the production write-off authorizations 
(representing a credit to inventory) contained in the paying 
file must be analyzed to determine the expense accounts to be 

A monthly standard Journal entry to be made for the purpose 
of adjusting the accounts payable follows: 

Debit: Accounts payable for the total of the agency’s art charges, 
plus the total of the expense-billing authorizations and less 
the total of the write-off authorizations. 

Debit: Various expense accounts, for the total of the write-offs 
(individual expense accounts to be charged as per analysis 
of production write-offs). 

Credit: Art income, for the total of the charges for the agency’s 
own art work. 

Credit: Various expense accounts for the total of the expense- 
billing authorizations (individual expense accounts to 
be credited as per analysis of expense-billing authoriza- 

The total amount of each month’s expense-billing authoriza- 
tions, production write-ofTs and agency's art charges should be 
recorded in the Voucher Register in the column headed “Paid" 
representing the adjusting entry to the accounts-payable control 
account explained above. The total of the production write-offs 
should of course be recorded in red as it represents the offset to 
the items originally entered in red in the cost column. As a 
result, there will be no balance to be carried forward in the bal- 
ance column for any of the three mentioned items. 


There is no one standard practice that is universally followed 
by agencies in billing advertising materials to their clients. Some 



agencies send out bills for advertising materials only after a 
particular job has been completed. A job covers one specific 
advertisement and includes all of the items that are needed to 
complete the production of that advertisement, such as art work 
or photography, typography, plates, mats, photostats, proofs, 
etc. Other agencies send bills to clients at the end of each month, 
billing all of the materials that they have bought for the client 
since the end of the last monthly period. 

Billing on a completed-job basis has the apparent advantage 
of producing one invoice for each job. This facilitates matters 
for the advertiser because it allows him to see from one invoice 
what the total cost of advertising materials has been in connec- 
tion with the production of one advertisement. 

There are, however, a number of disadvantages in this method 
of billing. If billing is delayed until a complete job is finished, 
the invoice in many cases cannot be prepared'for three or four 
months after the first item has been purchased and received by 
the agency. It is not unusual for the agency to order and receive 
art work or photography months prior to the completion of the 
final plates for the printing of the advertisement. In the mean- 
time much work has been performed such as setting type, hand 
lettering, assembling the various elements of the advertising 
materials, and the like. 

When the final item is secured and the job is billed to the 
client, both agency and client may have forgotten some of the 
details that originated while the advertisement was in prepara- 
tion. It may have been necessary to change or reset the type 
because of some new idea that occurred to the advertiser. This 
correction, at an additional cost, may have been no fault of the 
agency or the supplier, and the advertiser may have frankly 
agreed that he should pay for the cost of making the correction. 
But three or four months later, both agency and advertiser 
may have forgotten why the type was reset and this may give 
rise to difficulties. Another disadvantage from the standpoint 
of the advertiser is the fact that it is very difficult for him to 
check the items of advertising materials that were actually used 


in the completion of the advertising when invoices for such 
items are received months later. 

A disadvantage to the advertising agency of billing on a com* 
pleted-job basis is the fact that the agency must pay suppliers 
months before it collects from the advertiser. In some cases, 
clients insist on receiving cash discounts (the same discounts 
the agency received from the supplier) for prompt payment. In 
these cases, the advertiser argues that he is perfectly willing to 
pay the bill as soon as it is received. Therefore, why shouldn't 
he have the benefit of the cash discount for prompt payment? 
The reason is that the agency financed the transaction and paid 
the money to the supplier weeks or months prior to receiving 
reimbursement from the advertiser. 

Where all materials that have been purchased during a month 
are billed at the end of the month, an advertiser may receive 
two, three or four invoices for materials purchased in connec- 
tion with the same advertisement, since the art work may be 
purchased during one month, the typography in a second month 
and other items in the third and fourth months. 

Where an agency follows the plan of billing clients monthly 
for all advertising materials purchased during the month, it is 
important that the invoices prepared by the agency be arranged 
so as to show the total cost of materials purchased for each 

This can be done in either of two ways: A separate invoice 
may be prepared at the end of each month for materials pur- 
chased for each particular job number or one invoice may be 
prepared to cover all the advertising materials purchased for 
the particular client. In this case, the items on the invoice should 
be grouped by job number and subtotals should be developed 
to show the total cost and the billing price of the items relating 
to each job number. The preparation of a separate invoice each 
month for each job number is preferable since, when this method 
is followed, the invoices may be filed from month to month and 
all of the invoices pertaining to one job number (presumably 
there would be not more than three or four) can be gathered 



together to secure the total cost and the detail of all of the items 
billed for one particular job. 

Where all items purchased during the month are billed at the 
end of the month regardless of whether the jobs are completed 
or not, the invoice to the client is prepared at the end of each 
month by reference to the production department's file contain- 
ing third copies of suppliers’ bills. If detailed billing is per- 
formed these items are described on the invoice. The suppliers’ 
bills are then returned to the file and held in the production 
department until the job is completed, at which time they are 
filed away in a storage file. 

Where abbreviated billing is performed, the copies of sup- 
pliers’ bills contained in the production department’s file folder 
are taken from the folder and attached to the abbreviated bill 
which is sent to the client. The folder is returned to the produc- 
tion department and bills are accumulated fdr the next month, 

When the job is completed, the production department marks 
“Completed” on the file folder and sends it to the accounting 
department for final billing. In some cases where the agency or 
the client wishes to accumulate the total cost of the materials 
purchased to complete one particular job, the monthly billing 
amount is noted on the production department’s file folder, and 
when the final invoice is prepared, the total cost of all of the 
items that have been billed at that point is noted on a memo 
which is attached to the final invoice to the client. 

Where the completed-job basis of billing is used, the produc- 
tion department, upon completion of a job, forwards its file 
folder for this job to the accounting department with any spe- 
cial instructions that it has in connection with the billing. (Spe- 
cial instructions are required only where detailed billing is 
performed.) The accounting department now refers to the 
billing-file folders, selects the folder representing the particular 
job being billed, and verifies the fact that the material contained 
in the billing-file folder (suppliers’ bills, expense-billing au- 
thorizations, production write-offs and job transfers) is identical 


with the material contained in the production department's job 
envelopes. The sum total of these documents represents the 
total cost of all of the items purchased for the particular job 
and must agree with the accumulated costs as entered in the 
Inventory Control Journal opposite the proper job number. 

When the above verifications have been made, the bill is 


Any Hosiery Company 
23 West End Avenue 
Tucson, Missouri 

September 30> 19 

Job No. 1221 - Women's ad #1, Oct. issue of 
Cosmopolitan and Nov. issue of 
Life - "Over Everything" - 

Composition - alterations - press proofs and reproduction 
of proofs on the above ad - 

$ 19 77 

$ 19 77 

One combination deep etch halftone - extra halftone 

negative - extra line negatives - outlining - stripping - 
double printing - staging - re-etching and dropping out 
vhites for above ada--Cosmopolitan Magazine 

1+7 11 


One combination deep etch halftone - extra halftone 

negative - extra line negatives - outlining - stripping - 
double printing - staging - re-etching and dropping out 
whites for above ad- -Life Magazine 

1+8 11 

1+0 11 

$ 111 * 99 

Plus 15^ Agency Commission 

17 25 

$132 21+ 

4 CLIENT copy ► 


OFFICE copy 


Fig. 44. Detailed Billing. 


If detailed billing is performed, each item is described on the 
typed invoice. (See Figure 44.) The invoice form may contain 
three columns as follows: 

Commissionable Non-Commissionable Total 

Items Items 



The non-commissionable items include postage, express, sales 
tax, etc. The agency's cost for each item is typed in the proper 
column. The columns "Commissionable Items" and "Non- 
Commissionable Items" are totaled. The sum of the totals of 
the two columns is extended into the "Total" column. To the 
total cost of all items (commissionable and non-commission- 
able) the agency's commission (representing a percentage of the 
total cost of commissionable items) is added to produce the total 
billing price of the invoice. 

After the bill is typed, the production job envelope includ- 
ing suppliers' bills, expense-billing authorizations, production 
write-offs and job transfers, is transferred to a closed file. The 
data in the billing-file folder are transferred to a closed file after 
the invoice has been prepared. 


Where abbreviated billing is performed, the procedure as 
outlined for detailed billing is followed except that no descrip- 
tion is given on the invoice; and in place of such description, the 
date of each supplier's bill and the name of the supplier is 
typed. (See Figure 45.) The data contained in the production job 
envelope (suppliers' bills, expense-billing authorizations, pro- 
duction write-offs and job transfers) are attached to the agency's 
invoice and sent to the client.* 

* It may not always be desirable to attach expense-billing authorizations, 
production write-offs and job transfers. In some cases, it is not necessary to 
attach invoices from the agency’s own art department. Where these docu- 
ments are not to be attached, the art department charges are described on 
the invoice. The suppliers’ bills covering the items that are absorbed by the 
agency as expense through the production write-offs are eliminated and not 
listed on the invoice at all. Neither is the supplier's bill attached. In place of 
expense-billing authorizations, the description of the item can be typed on 
the invoice or an appropriate memo can be used to support the item instead 
of sending the expense-billing authorization which is designed to be used as 
an internal form. 




To summarize, the procedures are listed as follows: 

1. A production order is issued. This contains a complete 
description of the advertisement and the materials required. 
Copies of production orders are sent to each department 

2. Department heads, upon receiving copies of production 
orders, assign the work outlined. A traffic department or 



500 N* MlCMttAN 

cuica^o l, iu 

Tx Whitehall Soap Company 

15 Eaat Street 

Tulsa, Texas 

oiiptiom Soy Cana Elahlnt 





Pa 11Q1 

•0 Wft 1QJL 








Inside Art Work 

Layout and art 






Express Charges 





J. It. Bundshe 







The Fal thorn Corp. 






Partridge It Anderson Co. 










Add>-Agenc; Ccuuslsslon - 

17.65* of 1207. 



Total A 


-- g'% I L'MTC 

* rnpv _ 

1<LI Ln I *5 

V>Uri — 

Fig. 45 . Abbreviated Billing. 



control desk checks on essential dates to make sure that the 
materials are received as required. 

3. The production and art departments, upon receipt of pro- 
duction orders, confer with contact men and issue purchase 
orders to suppliers. 

4. Bills are received from suppliers in triplicate. Two copies 
of each bill are forwarded to the accounting department. 
The third copy is filed in the job envelope kept in the pro- 
duction department. 

5. The accounting department establishes two files called 
“Billing File” and “Paying File.” The Billing File contains a 
separate file folder for each production-order number. One 
copy of each supplier’s bill is filed in the proper file folder. 
The Paying File consists of a separate file folder for each 
supplier. One copy of each supplier’s bill is put in the folder 
bearing his name. 

6. At the end of the month, the material contained in each 
billing-file folder is listed on an adding-machine tape. The 
total is recorded in the Inventory Control Journal. Each 
paying-file folder is listed on an adding-machine tape. The 
total of each folder is entered in the Voucher Register. 

7. Agencies bill advertising materials to clients either monthly 
to cover all purchases made during the month, or after each 
particular job is completed. Invoices for clients may be 
prepared in two ways: 

a. Detailed billing. 

b. Abbreviated billing. 

8. The total cost of all of the items billed on one invoice is 
entered in the Inventory Control Journal under the proper 
month heading, in the column headed “Billed” and oppo- 
site the particular job number. 

9. A general ledger account called “Unbilled Advertising Ma- 
terials” is charged with the cost of all of the purchases of 
advertising materials and is credited with the cost of all of 
the items billed to the agency’s clients. 



10. A general ledger account called “Accounts Payable, Ad- 
vertising Materials” is credited with the cost of purchases 
and charged with payments and adjusting entries. 

11. To charge a client for materials or services originally pur- 
chased by the agency for its own use, an expense-billing 
authorization form is prepared which is treated exactly as 
though it were a purchase from a supplier. 

12. When the agency has already charged a client's production 
order with materials or services purchased in connection 
with that job, but it is desired to have the agency absorb 
the expense, a “production write-off” form is prepared. 

13. When an item has been charged to one production-order 
number and it is desired that the charge be transferred to 
another production-order number, a job transfer is pre- 

It is recommended that advertising materials purchased 
for a client be billed monthly regardless of whether jobs are 
completed or not and that abbreviated billing as previously 
described be performed in place of detailed billing. The abbre- 
viated billing is considerably more simple, requires less clerical 
help and there is less chance for error. When suppliers' bills are 
attached to the agency's invoice and sent to the client, the client 
has the same information regarding the charges as the agency 
has and there can be no doubt as to the correctness of the 
agency's charges. Billing is accomplished promptly, while both 
agency and client recollect the details of the transaction. 

22 1 

8. Accounting for Art Work 
Performed by the Agency 

kJOME advertising agencies operate their own art studios and 
produce art work that is used in connection with their cli- 
ents’ advertising. Where such departments are operated, it is 
necessary for the agency to bill the advertiser for the art work 
produced. Agencies bill such art work either on the basis of its 
estimated value or on the basis of the time devoted to it by the 
artists. No generalization can be made about which method is 
preferable for either agency or advertiser, for it depends on 
many conditions that vary between one situation and another. 
Just as independent art studios have different methods of bill- 
ing, so agencies do also. 


In any event, however, it is desirable for the agency to have 
some way of determining the result from the operations of its 
own art studio. To do this, it is necessary to keep a record that 
will show the total amount of art work billed and the total cost 
of producing that work. A record of the total cost of producing 
art work is compiled by segregating the cost of operating the art 
studio from the cost of other agency operations. The cost of 
operating such a studio would include the salaries or other com- 
pensation paid to artists, the rental for the floor space occupied 
by the studio, the prorated cost of telephone, light, stationery 
and the like, the cost of art supplies, and other incidental costs 
pertaining to the operation of the studio. 

Usually, agencies prepare rough lay-outs and buy finished art 
work for clients without charging a special fee. In other words, 


rough lay-outs and art direction are part of the service that the 
agency performs in consideration of the commissions received 
from the sale of advertising space. 

Comprehensive lay-outs and finished art work, on the other 
hand, are usually billed to the advertiser whether the item is 
purchased on the outside or produced by the agency's own art 
studio. Where rough lay-outs and art direction are furnished 
“free,” and comprehensives and finished art work are billed, 
some segregation of the cost of the art studio must be made, for 
it would be unfair to charge all of the cost of operating the de- 
partment against the income received from just the art work 
that is billed. Some of the cost of operating the art department 
or studio must be considered as applying against the commission 
income from advertising space sold. 


Usually, it is not difficult to make a reasonably accurate segre- 
gation of the art department cost. The art director devotes a 
portion of his time to performing the “free work" and the bal- 
ance of his time to supervising the activities of the other artists 
whose work is to be billed. 

Part of the overhead expense of the department, including 
such items as rent, telephone and supplies, is incurred in con- 
nection with art direction. The balance of the overhead expense 
is incurred in producing the art work that is billed. To segregate 
the two classes of expense (that applying to the normal agency 
operation and that applying to the operation of an art studio) 
the segregation of employees' costs is made on the basis of time 
records and the segregation of indirect expenses including over- 
head is made through estimates and allocations. (See chapter 
on “Cost Accounting" for detailed procedures.) 

In order to segregate the cost of each particular job in the 
art studio, it is necessary to keep time records. The simplest form 
of record that will furnish the necessary information is an art 
time record on which all of the time devoted to the production 



of one particular job is accumulated. (See Figure 46.) This time 
record sheet is attached to the work; and as the work is passed 
from one artist to another, each artist posts the time he devoted 
to the job on this record until the work is completed. 



r » am wo 

CLIiKIT .... - 







M H 





H H 



















H ■ 








H H 




H ■ 



■m m^r 





Fig. 46. Art Time Record. 

When the work is completed, it is passed to the art director, 
who determines the amount to be charged for the job. Where 
work is billed to clients on the basis of the number of hours 
devoted to the job, the establishment of the billing price is a 
matter of mathematical computation. 

It should be noted, however, that where this type of billing is 
performed, the hourly rate must include not only the cost of 


the artist's salary, but also an amount to provide for overhead 
expense and profit. For example, where an artist's pay rate is 
two dollars an hour, it may be necessary to charge five dollars 
an hour to cover overhead and profit. Where the work is billed 
on the basis of intrinsic worth, the art director, by examination 
of the work, fixes the price. 

In either event, after the price is fixed, an invoice is prepared. 
The art department's charges in some cases are billed as non- 
commissionable items but in other cases the agency adds a com- 
mission to the charges made by its own art department. It seems 
peculiar for an agency to fix a price for a service and then add a 
commission to that fixed price. For this reason, the bill for art 
work produced by the agency should be considered a non-com- 
missionable item and sufficient profit should be added in figuring 
the cost of the art work to provide the gross margin required. 

Where the agency follows the method of billing advertising 
materials by preparing an abbreviated invoice* the invoice 
from the agency’s own art studio will be attached to the invoice 
covering advertising materials, since the art work is only one of 
the materials required to complete a job. In this case, the invoice 
should be complete in order that the client can have a full 
description of the work performed. 

The invoice bears the name of the agency and usually carries 
the inscription “Art Studio" so that the normal form of the 
agency’s own art studio’s invoice would be: 

ABC Advertising Agency Art Studio 


Progressive Corporation 

Anywhere, U.S.A. 

For— one black and white illustration 

of man with run-down heel $50.00 

Invoices are made in quadruplicate; the art department re- 
tains one copy and forwards the other three to the accounting 

* See chapter “Advertising Materials: Billing, Paying and Accounting.” 



When the accounting department receives three copies of art 
invoices from the art department, these invoices are handled by 
them in exactly the same manner as the bills of an outside sup- 
plier of advertising materials. 

In other words, one copy of the invoice is filed in the billing 
files, one copy in the paying files and one copy in the production 
job envelope. The copy that is filed in the paying files is placed 
in a manila folder bearing the name “Art Department Charges.” 

At the end of each month when the accounting department 
balances and posts its records in connection with advertising 
materials, the total of the art department bills found in the pay- 
ing folder is posted to the Voucher Register by writing the name 
“Art Department” in the column of the Voucher Register nor- 
mally used to show the supplier’s name. The art department’s 
bills in the billing-file folders remain there until all of the adver- 
tising materials in connection with the particular job are to be 
billed to the client. They are billed along with the other sup- 
pliers' charges as described in the chapter on “Advertising Ma- 
terials: Billing, Paying and Accounting.” 


It will be seen from all this that, by the procedures outlined, 
the accounting records are developed to show the total amount 
of the art studio’s billing and the total cost of operating the 
studio, and that the difference between the two shows as 
the profit or loss from the operation. It should be noted that the 
methods described provide for billing the art work only when 
each piece of work is completed. Because of this procedure, at 
the close of any one month the art studio may have some accu- 
mulated costs of uncompleted work that is not yet billed. Con- 
sequently, the accounting records are not an entirely accurate 
record of each month’s profit or loss. 

The methods described form the simplest basis for compiling 
the records and it is believed that the monthly overlap of un- 
billed work in the art department or studio is relatively unim- 
portant so far as interim reports are concerned. 



If an agency wishes to have completely accurate monthly 
reports showing the exact operations of the art department, it 
will be necessary to supplement the method previously de- 
scribed by taking a monthly inventory of the uncompleted work, 
evaluating this inventory and adjusting the figures. Where art 
departments perform services in connection with the advertising 
of clients which cannot be billed to the clients and are to be 
absorbed as agency expense, it is still advisable for the art studio 
to prepare memo bills to cover such items so that these bills may 
be considered in the operation of the agency's own cost-account- 
ing system. The cost of producing art work used by a particular 
client, where such items of cost are to be absorbed by the agency, 
must be considered in computing the profit or loss that the 
agency makes through the transactions it handles for each client. 


9. General Books and 
Chart of Accounts 

In PREVIOUS chapters, the detailed methods for billing and 
paying are described, and the forms used in completing these 
transactions are exhibited. It is necessary to accumulate infor- 
mation concerning current transactions in order to provide a 
lucid picture of what has transpired. To accumulate this infor- 
mation concerning the business, the transactions must be en- 
tered in accounting records. 

Before accounting records can be developed, it is necessary 
to know what information is to be gathered. One type of record 
will develop one end result, and another type of record will 
develop an entirely different result, so that before determining 
what accounting records should be used in an advertising agency, 
it is necessary to know what information is to be furnished to 
management from the books of account. 

In a previous chapter on “Budgets” it was shown that a proper 
budget can be set up to show in advance which accounts will be 
profitable, which will not be, and why. The budgeting procedure 
enables management to look into the crystal ball and thereby 
secure a fairly accurate idea of what is likely to happen in the 
future. The accounting records of an agency should be set up in 
such a manner that the figures and facts that are accumulated 
will show how well the agency's employees have followed the 
policies laid down by management. Consequently, these records 
will show where the operations differed from the forecast and 
they will provide an analysis of the reason for the differences 
between the budget and the actual operations. 



The accounting records should provide a means for measur- 
ing costs. To measure such actual costs, it is necessary to know 
the operations that resulted from the transaction of business 
with each client separately. The accounting records that will be 
described have been developed to accomplish the purpose just 
outlined. It is not intended that the accounting records de- 
scribed herein be adopted by every advertising agency. They 
are given merely as examples of the type of records that will 
develop the facts that most agency executives ordinarily can use 

The books of account, the forms and methods to be used by an 
advertising agency must be “made to measure” and the “cloth 
must be cut to fit” the particular requirements of the agency. 
In developing any accounting records, the wisest procedure is 
to determine first what end results are sought and then, with 
these end results in mind, the methods, forms and books of 
account can be developed so that, when the transactions are 
completed, the end results will be produced without the neces- 
sity of reworking the figures. 

The books of account to be discussed in this chapter are based 
on the assumption that management should know the results 
of the operations of the agency, not only as a whole, but also 
according to the transaction of business with each particular 
client. It has been found that the operating facts and figures 
concerning each client’s business can be secured with very little 
if any additional work when the books and records are set up 
with this in mind. 

The cost-accounting methods and the cost-accounting reports 
including the individual client operating statement have been 
described in the chapter “Cost Accounting.” The general ac- 
counting records and books that are used to record the trans- 
actions that are discussed in this chapter are intended to develop 
the facts and figures required for the cost-accounting reports. 
In addition, they form the basis for securing the information 
for the agency's General Operating Statement and balance sheet. 








The General Operating Statement shown in Figure 47 is 
designed so as to compare actual figures with budgeted figures. 
Also, it is designed to show figures both for the current month 
and for the year to date. The billings are reported by classifica- 
tion of media as are the media costs and commissions. Expenses 
are divided into the two main classifications of direct expense 
and of general and administrative expenses. Each classification 
of direct salary is shown on the statement as is each general class 
of direct expense. General and administrative expense is re- 
ported on the statement in one figure only. 

The General Operating Statement is supported by two sched- 
ules. The schedule of General and Administrative Expense 
(Figure 48) shows the amount of each type of expense divided 
into the two main classifications “Expenses 7 and “Indirect Sal- 
aries/* The schedule of Direct Salaries (Figure 49) merely lists 
each classification of salary, the names of the individual em- 
ployees in each such classification, and the amount of compen- 
sation paid to each. Subtotals on this report show the total direct 
salaries for each classification, which totals are shown on the 
General Operating Statement. 


The balance sheet shown in Figure 50 is designed to present 
the necessary figures to indicate the financial condition of an 
agency. The advertising agency has no need for anything but 
the conventional type of balance sheet and the one shown in 
Figure 50 provides for the usual items that are to appear. It is 
designed for use in connection with the operating statement 
that has been discussed. 


The General Ledger as used by an advertising agency is much 
the same as the orthodox form of General Ledger. There are a 
number of accounts, however, that can be subdivided, such as 


sales, cost of sales, accounts payable, etc. Such a division of ac- 
counts also is important where an agency has a number of 
branches in different cities; then the figures in connection with 
the operation of each branch should be developed and recorded 





Cash In Banks 

Accounts Receivable $247,626.00 

Less — Reserve for Bad Debts 500.00 



Miscellaneous Receivables 
and Advances 

Unbilled Media and Production Costs 



Total Current Assets 



Unexplred Insurance 

Leasehold Improvements 

Organization Expense 

$ 517.00 


Total Prepaid Expenses 

Inferred .ghgrfles 



Furniture and Fixtures 

Less — Reserve for Depreciation 

$ 23,770.00 

Book Value 






Accounts Payable 

Due to Officers and Employees 

Accrued Commissions 

Reserve for Federal Income Taxes 

Accrued Social Security Taxes 

Withheld Income Taxes Payable 

Client’s Prepayment 







Ig&LL.gv*irgn t „ Liabilities 





Capital Stock, $100.00 Par Value 

Authorized 2,000 Shares, 

Issued 1,000 Shares 

Surplus — 

Net Profit for Year Ended 

January 31, 19 



iPtal.Evt Worth 




Fig. 50. Balance Sheet. 




Fig, 51. Columnar Ledger Sheet. 


separately. When these conditions occur, it is suggested that a 
columnar General-Ledger sheet be used. (See Figure 51.) The 
typical accounts carried in the General Ledger of an advertising 
agency are: 


Current Assets: 

Cash in Bank 
Petty Cash Fund 
Notes Receivable 
Accounts Receivable 

Unbilled Advertising Materials (Inventory) 

(At Cost) 

Due from Officers and Employees 

Cash Surrender Value of Business Life Insurance 
(Officers and Employees) 

Marketable Securities 
Unlisted Securities 

Prepaid Expenses and Deferred Charges: 

Unexpired Insurance 

Prepaid Dues and Subscriptions 

Inventory of Supplies 

Organization Expense 

Leasehold Improvements (Unamortized) 

Fixed Assets: 

Furniture and Fixtures 
Office Equipment 
Reserve for Depreciation- 
Furniture and Fixtures 
Reserve for Depreciation- 
Office Equipment 


Current Liabilities: 
Notes Payable— Banks 




Accounts Payable-Space 

—Advertising Materials 

Accrued Sales and Commissions 
Accrued Social Security Taxes 
Accrued Miscellaneous Taxes 
Reserve for Federal Taxes on Income 
Employees’ Savings Bond Deduction 
Pension and Profit-Sharing Fund 
Long Term Liabilities: 

Notes or Accounts Due after 
One Year 

Net Worth 

Capital Stock or Partners’ Capital Accounts 
Paid-in Surplus 
Earned Surplus 



Radio— Time 

Radio— Talent and Production 

Advertising Materials 
Service Fees 
Cost of Billings: 

Radio— Time 
Radio— Talent 

Advertising Materials 
Direct Expenses: 

Executive Salaries 
Contact Salaries 


Secretaries’ Salaries 
Copy Salaries 
Art Salaries 
Production Salaries 
Media Salaries 
Radio Salaries 
Other Direct Salaries 

Unbillable Costs 

General and Administrative Expenses: 
Indirect Salaries: 


Contact Men 











Receptionist and Switchboard 




Telephone and Telegraph 

Stationery and Supplies 

Postage and Express 

Art Supplies 


Local Travel 

Auto Expense 







Dues and Subscriptions 
Leasehold Amortization 
Miscellaneous Taxes 
Social Security Taxes 

Other Income: 

Discounts Earned 
Interest Earned 
Dividends Received 

Other Expenses: 

Discounts Allowed 
Interest Paid 

New Business or Promotional Expense 


The following is a complete list of the books of record or files 
required in maintaining the modern advertising agency ac- 
counting system outlined in this book: 

Name of Record or File Information Included 

1. Sales and Cost Journal a. Individual client pages are provided 

for the entry of the billing amount 
and the cost of each client invoice. 

b. The monthly billings and costs for 
each client, classified by type of me- 
dium, are totaled. 

c. The date of collection and the bal- 
ance due, if any, is noted for each in- 
voice entered in this record. In this 
manner, the detail of accounts re- 
ceivable is maintained. 

d. Monthly totals of billings and costs 
for the agency as a whole are ob- 
tained by recording the client totals 
on a recapitulation page. 



Name of Record or File Information Included 

2. Inventory Control a. Individual client pages are provided 

Journal (for advertising containing columns for recording 
materials) the total of costs incurred, billed 

and unbilled for each job, each 
month of the year. 

b. Monthly totals of costs incurred, 
billed and unbilled for the agency as 
a whole, are obtained by recording 
the client totals on a recapitulation 

3. Billing File a. Copies of suppliers* bills, expense- 

(file of suppliers* bills, billing authorizations, production 
etc., covering advertis- write-offs, and job transfers are filed, 

ing materials arranged The accumulated monthly costs for 

in client and job num- each job are entered in the Inven- 
ber order) tory Control Journal. 

b. The folders for jobs billed are re- 
moved and placed in a completed 

4. Voucher Register (for a. The pages contain columns for each 
advertising materials) month of the year in which the 

monthly totals of costs incurred, 
and paid, and balances due are re- 
corded for each supplier. 

b. Monthly totals of costs incurred must 
agree with those in the Inventory 
Control Journal. The monthly to- 
tals of payments and balances due 
are verified with other records. 

a. Copies of suppliers’ bills, expense- 
billing authorizations, production 
write-offs, and job transfers are filed. 
The accumulated monthly costs for 
each supplier are entered in the 
Voucher Register. 

b. The bills and other data after pay- 
ment or other disposition are placed 
in a closed file. 

5. Paying File 

(file of suppliers* bills, 
etc., covering advertis- 
ing materials arranged 
in the order of supplier) 


Name of Record or File 

Information Included 

6. Expense Voucher 

7. Cash Receipts Journal 

8. Standard Journal 

9. General Journal 

10. File copies of checks is- 

a. Individual suppliers’ bills are en- 
tered and distributed in the follow- 
ing columns: 

(1) Direct Expenses 

(Client’s name and type of 
item are noted for each entry) 

(2) New Business Expenses 
(Prospect’s name and type of 
item are noted for each entry) 

(3) General and Administrative Ex- 

(Account to be charged is 
noted for each entry) 

(4) Miscellaneous 

(Account to be charged is 
noted for each entry) 

b. Payment dates are' recorded for each 
bill entered. In this manner, the de- 
tail of Expense Accounts Payable is 

All receipts are entered and prop- 
erly distributed. 

All recurring monthly adjustments 
are recorded. 

All non-recurring adjustments are 

a. Duplicate copies are filed in numeri- 
cal order. Adding-machine tape to- 
tals represent monthly disburse- 
ments for the agency as a whole. 

b. Triplicate copies are filed separate- 
ly for: 

(1) Payments to publishers 

(2) Payments to radio stations 

(3) Payments to radio talent, etc. 

(4) Payments to outdoor plants 

(5) Payments to advertising mate- 
terial suppliers 

(6) Payments to other suppliers 

(7) Payroll payments 



Name of Record or File Information Included 

Monthly totals of each of the above 
groups represent charges to the cor- 
responding accounts-payable con- 
trol accounts. The grand total of all 
the groups must agree with the total 
of the duplicate copies. 

1 1 . Payroll Summary and Salaries paid and related payroll de- 

Employees’ Earnings ductions are recorded. 


12. Space Insertion Order a. Copies of insertion orders are kept 

Files in the following files. These files are 

arranged by client, state, city and 

(1) Unbilled and Unpaid 

(2) Billed and Unpaid 

(3) Paid and Unbilled 

(4) Billed and Paid 

b. Each order is to contain the gross, 
net and cash discount amounts. Dates 
of invoices issued to clients and pay- 
ments to publications are to be 

c. The Billed and Unpaid, and Paid 
and Unbilled orders will show the 
net amounts due or prepaid. 

13. Radio Time Invoices a. Copies of the detailed invoices cov- 

Files ering programs on each radio station 

are placed in the order of Radio 
Station Call Letters in the following 

(1) Billed and Unpaid 

(2) Billed and Paid 

b. Each invoice will show the gross and 
net amounts of the radio station’s 
charges. The dates and amounts of 
the payments to the radio station are 
to be noted. 

c. The invoices contained in the Billed 
and Unpaid file will show the net 
amounts due to each radio station. 



Name of Record or File Information Included 

The total will agree with the Radio 
Time Accounts-Payable Control Ac- 

a. Copies of radio production orders 
are filed in the order of client and 
job number. After each order is 
billed and all items of cost are paid 
for, it is placed in a closed file. 

b. Each order will show the various 
items of cost, the date of billing, and 
the dates of payments. 

c. The unpaid items on each order will 
represent the amounts due each sup- 
plier. The total of these items will 
agree with the Accounts-Payable 
Control Account for Radio Talent 
and Production. * 

15. Outdoor Contract Files a. Copies of outdoor contracts are filed 

in the order of client, state and city. 
After each contract is completely 
billed and paid, it is placed in a 
closed file. 

b. Each contract will indicate the gross 
and net amounts for each month. 
Dates of invoices issued to clients 
and payments to outdoor plants will 
be noted. 

c. The net amounts of the items billed 
but not paid will represent the lia- 
bilities to each outdoor plant. The 
total of these items will agree with 
the Accounts-Payable Control Ac- 
count for Outdoor. 

Sales and Cost Journal 

This is a book of original entry. The billing price and cost of 
every invoice sent to a client of the agency is to be entered in 
this Journal. (See Figure 23, shown on page 154.) The record is 
designed to: 


14. Radio Production 
Order Files 


1. Accumulate automatically the billings and cost of billings 
for each client separately. 

2. Segregate the billings and cost of billings to each client 
so that the totals for a month or other period will show 
the volume of each type of transaction (newspapers, maga- 
zines, radio time, advertising materials, etc.) handled for 
each client. 

3. Accumulate the total billings and cost of billings for the 
agency as a whole and classify them by types of transactions. 

4. Provide a record of charges to each client and collections 
therefor, showing the unpaid items (accounts receivable 
detail) . 

5. Form the basis for accumulating figures through which 
internal controls can be established to assure the billing 
of all items paid and the paying of all items billed. 

It is intended that the Sales and Cost Journal be used essen- 
tially as a monthly record, that is, that the record be totaled and 
posted to the General Ledger at the end of each month. A sepa- 
rate page is to be used for each client except where an agency 
has only a few transactions with a client, in which case a half- 
or quarter-page will suffice. Office copies of invoices are entered 
in this record. 

Entries are made simply by locating the page for the particu- 
lar client and then entering the date of the invoice and the 
invoice number. The gross billing price is first entered in the 
column headed ‘‘Accounts Receivable" and is again entered in 
the column headed by the media which the bill covers. In other 
words, if the invoice being entered is for magazine space, the 
gross billing price of the magazine space is entered first in the 
column headed ‘‘Accounts Receivable" and then again in the 
column headed ‘‘Magazines." The total cost of the items on the 
invoice as shown by the office copy of the invoice is entered in 
the section of the journal headed ‘‘Cost of Sales," and in the 
column under this heading bearing the name of the medium 
represented by the invoice. Again, if the invoice is for magazine 



space, the cost of the space is posted in the “Magazines” column 
in the “Cost of Sales” section of the Sales and Cost Journal. At 
the end of each month, each page of the Sales and Cost Journal 
is totaled. This develops a total for each column on each page. 

The totals in the “Sales” section on each page represent the 
total sales of each of the types of media for the client represented 
by the particular sheet. Figure 23 on page 154, shows a com- 
pletely entered sheet, totaled and ready for recapitulating. 

It is important to emphasize the fact that by properly enter- 
ing the invoices to the Sales and Cost Journal sheets, a record 
has been developed which, when totaled, provides the total 
sales of each class of medium and the total cost of those sales for 
each particular client's account handled. To secure the grand 
total sales and cost of sales for the agency as a whole, it is neces- 
sary to recap the totals as shown on each client's page. This is 
accomplished by preparing an additional sheet in the Journal 
that is especially ruled for the purpose. This recap sheet pro- 
vides for entering the name of each client and the monthly 
totals of the sales and cost of sales covering the items billed to 
each client. Figure 52 is a recap sheet that has been entirely com- 
pleted. Notice how the totals from the individual client sheet 
in the Journal (Figure 23) have been carried over and posted 
to the summary sheet (Figure 52) . 










RA 4u> 


L G S 




CO fc 


ft API* 
















•. ■ 
























































W ftfTi 















[■m ihh 










Sio - 




Fig. 52. Sales and Cost Journal— Recap Sheet. 



The Sales and Cost Journal is designed to act in place of an 
accounts-receivable detail ledger as well as to serve as a medium 
for recording and recapping sales and costs. After the invoices 
have been entered in the Sales and Cost Journal, as described, 
it is necessary to post the collections in order to complete the 
record, so as to show which items have been collected and 
which are outstanding. The left-hand column of the Sales and 
Cost Journal sheets is headed “Collection Data/' This column 
is divided as follows: 

Date Balance if Any 

When a client pays an invoice, the collection is first recorded 
in the Cash Receipts Journal which will be described elsewhere. 
The cash received is also recorded in the Sales and Cost Journal 
in the columns headed “Collection Data. 0 This is done by sim- 
ply posting the data of the collection, provided that the client 
has paid an invoice in full. If the client does not pay in full, 
both the date of the collection and the balance due should be 
entered. The balance due is the difference between the total 
billing price of the invoice and the amount paid by the client. 
After such a posting is made, the columns in the Sales and Cost 
Journal would appear as follows: 

Collection Data . 


Date Balance if Any Date Invoice Number Receivable 

1 - 17-48 $ 50.00 1 - 7-48 1234 $ 500.00 

In preparing the preceding example, it was assumed that the 
client paid $450.00 on account of the $500.00 invoice recorded. 

Since the totals shown on the Sales and Cost Journal monthly 
recapitulations represent the total monthly sales and cost of 
the sales, the total charges to clients, and the total cost of the 
items purchased (and therefore payable to the several media) , 
the following entries are made from the Sales and Cost Journal 
to the General Ledger accounts: 

1. Charge : Accounts Receivable 
Credit: Sales 



with the total of all invoices entered in the Sales and Cost Jour- 
nal for the month as shown by the recap sheet. 

2 . Charge: Cost of Sales 
Credit: Accounts Payable 

with the total of the cost of all items billed except advertising 
materials. The figures for these totals are secured from the 
monthly recap sheet. 

3. Charge: Cost of Sales, Advertising Materials 
Credit: Unbilled Advertising Materials 

with the total cost of advertising materials billed during the 
month as shown by the recap sheet of the Sales and Cost Journal. 

Where it is desired to segregate the sales and cost of sales so 
that the sales and cost of sales of each particular medium are 
shown separately in the General Ledger, instead of crediting 
sales with the grand total of all of the sales for the month, sepa- 
rate General Ledger accounts or separate columns in the one 
sales account in the General Ledger may be credited with the 
sales for each medium. 

Where this is done, a similar segregation will be made for cost 
of sales. It is desirable in most cases to segregate the credit to 
accounts payable so that, in the event that the records do not 
balance, the difference can be isolated and thereby more easily 
corrected. To segregate the credit to accounts payable, it is only 
necessary to secure the total cost of sales for each medium and 
to post the cost of each medium to the credit of separate ac- 
counts-payable control accounts. Examination of the entries 
just described indicates that the cost of advertising materials 
is credited to the account called “Unbilled Advertising Mate- 
rials” instead of to “Accounts Payable” as the other media are 

By referring to the chapter “Advertising Materials: Bill- 
ing, Paying and Accounting,” it will be noted that the total cost 
of all advertising materials purchased during a month is posted 
from the Voucher Register to the General Ledger by debiting 


“Unbilled Advertising Materials” and crediting “Accounts Pay- 
able, Advertising Materials.” When advertising materials are 
billed, the cost of each invoice is recorded in the Sales and Cost 
Journal, and the total cost of all such items billed is credited to 
the General Ledger account “Unbilled Advertising Materials,” 
leaving a balance in that General Ledger account which repre- 
sents the cost of the items purchased but not yet billed. 

A study of the entries to the Sales and Cost Journal and of 
the entries from that Journal to the General Ledger accounts 
will disclose that as soon as any item (except advertising mate- 
rials) is billed, the cost of that item is entered in the Sales and 
Cost Journal and from there is credited to an accounts-payable 
account so that a liability is established for the cost of each item 

The accounts-payable account in the General Ledger is sup- 
ported by various original documents as explained in detail in 
the chapters describing the methods for billing and paying each 
type of advertising medium. Thus, if an item is once billed, in 
order to clear the records it must be paid or otherwise adjusted. 
Correspondingly, if an item is paid to a publisher or a radio sta- 
tion, it will be seen that since the payment is charged to an 
accounts-payable account, the payment either offsets a credit 
previously set up or produces a prepaid item which must be 
billed or otherwise adjusted in order to secure an offsetting 
credit to clear the accounts-payable account. 

At the end of each month, each accounts-payable account 
(newspapers, magazines, outdoor, radio time, etc.) shows the 
balance in that account. This balance must agree with the de- 
tail supporting the account and showing the amount due to 
each publisher, each radio station, etc. 

The supporting detail in the case of newspapers and maga- 
zines consists of bookkeeping copies of insertion orders that are 
either paid and unbilled or billed and unpaid. The detail of 
the outdoor accounts payable is supported by bookkeeping 
copies of outdoor contracts. The total of radio time accounts 



payable is supported by bookkeeping copies of invoices sent to 
clients. The total of the radio talent and production accounts- 
payable account is supported by production orders. 

The above procedure provides an airtight control, making it 
necessary to bill every item that has been paid and to pay every 
item that has been billed, for, if this is not done, the unpaid or 
unbilled items remain open and are disclosed each month until 
disposed of. 

The entries to the Inventory Control Journal and the Vouch- 
er Register have been explained in some detail in the chapter 
“Advertising Materials: Billing, Paying and Accounting.” It is 
sufficient to repeat here that the purposes of these two records 
are as follows: 

Inventory Control Journal 

For each job number, each client, and for' the agency as a 
whole, monthly totals are accumulated for: 

1. Costs incurred. 

2. Costs of jobs billed. 

3. Costs of jobs unbilled. 

The Inventory Control Journal contains separate pages for 
each client and one recapitulation page. (See Figures 53 and 54.) 

— 1 

































Fig. 53. Inventory Control Journal. 


Columns are provided for each month of the year showing 
the accumulated costs incurred, billed and remaining unbilled 
for each job and each client. This record contains only the in- 
formation relative to monthly job cost totals, not individual 
bills. Each client's monthly totals of costs incurred, billed and 
unbilled are recorded on the recapitulation page so as to arrive 
at the total for the agency. 






























■ ■ 


m h 

; zmj 

Fig. 54. Inventory Control Journal— Recap Sheet. 

The grand totals shown on the recapitulation page for each 
month are verified in the following manner: 

1. The total of the cost column must agree with the total of 
the cost column in the Voucher Register. 

2. The total of the billed column must agree with the total 
of the cost of advertising materials billed, as shown in the 
Sales and Cost Journal (the recapitulation page of the 
Sales and Cost Journal will contain the grand total of 
the cost of advertising materials billed each month) . 

3. The total of the inventory column must agree with the 
balance in the General Ledger control account for un- 
billed advertising materials (inventory) . 

In effect, the totals of the three columns represent the debits, 
credits and balance in the General Ledger control account “Un- 
billed Advertising Materials." 



If differences occur in verifying any one of the three monthly 
totals discussed above, they can be located by the following steps: 

1. Total of cost column verified with the total cost column 
in the Voucher Register. 

The job costs entered in the Inventory Control Journal rep- 
resent totals of suppliers' bills, etc., arranged in job number 
order contained in the billing file. The entries in the Voucher 
Register represent totals of suppliers’ bills arranged in sup- 
plier order contained in the paying file. The billing and paying 
files contain exactly the same information; one arranged by job 
number, the other by supplier name. 

To locate the difference between the total costs entered in 
the Inventory Control Journal and those entered in the Voucher 
Register, it is necessary to obtain the various folders contained 
in the paying file and to sort the suppliers' bills and other data in 
the order of client. Client totals should now be obtained and 
checked with the client totals as entered in the Inventory Con- 
trol Journal. In this manner, the difference will be isolated to 
one or more clients. 

The material relative to the clients for which differences 
exist should be sorted in the order of job number. Totals for 
each job number are obtained and checked with the entries in 
the Inventory Control Journal, thereby isolating the differences 
to one or more particular jobs. 

It is now only necessary to check the contents of the job 
folders in the billing file with the material for each such job 
obtained from the paying file. In this manner, errors will be 
located and corrected. 

*. The total of the billed column of the Inventory Control 
Journal verified with the total of the cost of advertising 
materials billed as shown in the Sales and Cost Journal. 

The entries in the Inventory Control Journal for items billed 
represent the cost of invoices issued to client. The same invoices 

* 5 * 


are entered in the Sales and Cost Journal. The cost of advertis- 
ing materials billed to clients as entered in the two records 
should be in agreement. If a difference exists, the difference 
should be located in the following manner: 

The various client totals of the cost of advertising materials 
billed as shown in the Sales and Cost Journal should be checked 
with the client totals in the Inventory Control Journal. In this 
manner, the differences will be isolated to one or more of the 
several clients. 

Next, the copies of invoices entered in the Sales and Cost Jour- 
nal should be obtained and the cost of billing on each job com- 
pared with entries in the billed column of the Inventory Con- 
trol Journal. Each invoice of course will show the job number 
that is billed, simplifying the verification. In the process of this 
verification, errors in recording the cost of items billed will be 
located and investigated for correction. 

3. The total of the inventory column in the Inventory Con- 
trol Journal verified with the balance in the General 
Ledger control account “Unbilled Advertising Materials/' 

The charge to the General Ledger control account “Unbilled 
Advertising Materials" is posted from the total of the cost col- 
umn of the Voucher Register. Prior to this posting, the total 
cost of advertising materials purchased as shown by the Voucher 
Register was verified with the total costs as recorded in the In- 
ventory Control Journal. 

The credit to the General Ledger control account is posted 
from the total cost of advertising materials billed as found in 
the Sales and Cost Journal— recapitulation page. 

Before the posting is made, the total cost of advertising mate- 
rials billed as shown by the Sales and Cost Journal is verified 
with the total cost of materials billed as shown by the “Billed" 
column in the Inventory Control Journal. Since the total of the 
inventory column in the Inventory Control Journal is com- 
puted by adding the current month's purchases to the previous 



month's inventory and deducting the cost of items billed, the 
figures used to build up the balance in the General Ledger con- 
trol account should be identical with those used to compute the 
total in the inventory column of the Journal. 

It is possible, however, that the inventory amount for any 
one job could be computed incorrectly in the Journal. If this 
were done (and because of such an error) , the total of the in- 
ventory column would also be in error. To verify the fact that 
the total of the inventory column in the Journal is correct, the 
purchases for the month should be added to the prior month’s 
inventory and the cost of billing should be deducted. 

The resulting figure should balance with the total of the in- 
ventory column of the Journal. If it does not, then a computa- 
tion should be made to verify the total inventory carried for 
each client so as to isolate the error. When the error is isolated 
to one client or to several, the inventory figure for each job for 
such clients must be verified. 

If, after this verification is made, the total of the inventory 
column in the Journal is still out of balance with the General 
Ledger account, the error must represent either an incorrect 
posting to the account or the entry of some item into that ac- 
count that has not been adjusted in the Inventory Control 

The entries to the General Ledger account are to be verified 
with the sources from which the entries were made and the 
differences in this way are located. 

Voucher Register 

The Voucher Register, Figure 43, shown on page 211, con- 
tains columns for each month of the year. Suppliers’ names 
are listed in the left-hand column only once a year. The monthly 
purchases from, payments to, and balance due each supplier 
are entered in this record. In addition, the monthly totals of 
the agency’s own art department charges, expense-billing au- 
thorizations and write-off authorizations are recorded. The 
monthly totals of the “Cost," “Paid" and “Balance" columns 


represent the debits, credits and balance in the General Ledger 
accounts-payable control account for advertising materials. The 
total of the cost column for each month represents the amount 
charged to Unbilled Advertising Materials and credited to 
Accounts Payable, advertising materials. The three totals ob- 
tained from this record each month are to be verified as follows: 

1. The total of the cost column must agree with the total of 
the cost column in the Inventory Control Journal. 

2. The total of the paid column must equal the total of 
checks issued to suppliers, plus the net amount of the 
Journal entry adjusting for the agency's own art charges, 
expense-billing authorizations and write-off authoriza- 

3. The total of the balance column must agree with the bal- 
ance shown in the General Ledger accounts payable for 
advertising materials. Differences if any should be located 
as follows: 

a. Total of the cost column verified with the total of the 
cost in the Inventory Control Journal. 

The method for locating any differences in verify- 
ing this total has been described in the previous sec- 
tion covering the Inventory Control Journal. 

b. Total of the paid column verified with the total of 
the checks, etc. 

Copies of checks issued to suppliers must be checked 
in detail with the entries in the paid column of the 
Voucher Register. Next, the total of the Journal entry 
adjusting the net amount of agency’s art charges, ex- 
pense-billing authorizations and production write-offs 
should be verified with the amounts entered in the 
paid column of the Voucher Register. In the process 
of this verification, differences will be isolated to a 
particular check or checks or to the adjusting entry 
referred to above. 

c. Total of the balance column verified with the balance 



in the General Ledger accounts-payable control ac- 
count, advertising materials. 

If a difference exists between the balance in the 
General Ledger control account and the total in the 
balance column in the Voucher Register, the credits 
and charges in the General Ledger control account 
should be compared with the total of the cost and paid 
columns of the Voucher Register. The credit to the 
General Ledger control account is entered from the 
total in the cost column of the Voucher Register and 
therefore must be in agreement with it. 

It has been explained that the total of the paid col- 
umn must be in agreement with the checks issued to 
suppliers, plus the adjusting entry for the agency’s 
own art charges, expense-billing authorizations, and 

Therefore, the charges to the accounts-payable con- 
trol account for the checks issued plus the adjusting 
Journal entry referred to must be in agreement with 
the paid column in the Voucher Register. If a differ- 
ence exists between the balance in the General Ledger 
accounts-payable account and the total of the balance 
column in the Voucher Register, the errors must be 
due to incorrect posting to the General Ledger ac- 
counts-payable control account. 

Expense Voucher Register 

All agency expenditures other than billable media and ad- 
vertising materials will be entered in an Expense Voucher Regis- 
ter (Figure 55). This book of original entry is provided for the 
following purposes: 

1. To accumulate the total of agency expenses and capital 
expenditures in the month in which they are incurred. 

2. To distribute all items entered to the proper account. 

3. To maintain the detail of balances due suppliers. 



The recommended form of Expense Voucher Register con- 
tains columns from left to right, for the following major classi- 




































Fig. 55. Expense Voucher Register. 

1. Direct Client Expenses 

These are expenses such as traveling, entertainment, re- 
search, etc., clearly allocable to each of the several clients. 
Space is provided for recording the client's name, the 
type of expenditure and the amount. 

2. General and Administrative Expenses 

Columns are provided under this heading for recording 
the regular items of expense not directly allocable to the 
separate clients. Examples are rent, light, telephone, dues 
and subscriptions, legal, and audit. 

3. New Business or Sales Expense 

Expenses incurred such as traveling, entertainment, 
gifts, etc., for the purpose of obtaining new clients should 
be distributed within this classification. Columns are pro- 
vided for prospect's name, type of expense and amount. 



4. General Ledger or Miscellaneous 

Columns for description and amounts of expenditures 
not properly distributable within any of these three classi- 
fications are entered here. Items ordinarily entered under 
this heading are purchases of furniture, office equipment, 
Government bonds, other securities, etc. 

Payments to creditors should be noted in the payment date 
columns provided opposite the items paid. At the end of each 
month a list of the unpaid items will represent the detail of the 
expense accounts-payable control account. 

The information available for the preparation of separate 
client monthly operating statements (described in the chapter 
on cost accounting) and the General Ledger accounts to be 
charged are now discussed. 


A monthly summary of the items distributed to this classifi- 
cation will show the totals chargeable to each direct expense 
account such as entertainment, travel and other unbillable costs. 
The summary will show the totals of the above items separately 
for each client. The over-all totals of the direct expense accounts 
to be charged will be posted to the proper General Ledger ac- 
counts. The direct expense items applying to each client will 
be available from the summary. 


A summary of the monthly charges to each of the general and 
administrative expense accounts will be prepared from the items 
distributed to this classification, and the totals will be posted 
to the proper General Ledger accounts. 


A summary of the items distributed to this classification will 
be made monthly showing the totals chargeable to new business 
expenses such as entertainment, travel and other unbillable 


costs. The summary should show the amount of expense in- 
curred on account of each prospect. The totals of the new busi- 
ness expenses will be charged to the proper General Ledger 


The entries of expenditures distributed to this classification 
will indicate the proper General Ledger accounts to be charged. 
The postings to the General Ledger can be made directly from 
the individual items contained under this heading. 

Cash Receipts Journal 

A simple orthodox form of Cash Receipts Journal is recom- 
mended wherein the detailed collections from clients and other 
receipts deposited in bank accounts are recorded. (See Figure 
56.) Columns are provided for the total amount of each deposit 

Fic. 56. Cash Receipts Journal. 

in the bank, the gross amount of the credit to accounts receiv- 
able, cash discounts and all other collections. 

Standard Journal 

Each month, recurring types of entries are required. Included 
in this classification are entries representing the total of the 



checks issued, the amortization of leasehold improvements, de- 
preciation of fixed assets, the accrual of Social Security taxes, 
etc. Because entries of this type recur every month, a Standard 
Journal (Figure 57) is recommended. Debit and credit columns 
are provided for each month of the year. The advantages of 
using a Standard Journal are: 

Fig. 57. Standard Journal. 

1. It serves as a reminder for each recurring type of entry 
required each month, thereby assuring greater accuracy 
in the maintenance of the books and records of the agency. 

2. The details and description of each entry are written 
once for a period of twelve months. 

3. The standardized journal entry number facilitates the 
auditing of the accounts of the company because entries 
from the Standard Journal are readily understood when 
examining General Ledger accounts. 

General Journal 

The orthodox form of General Journal is used only for un- 
usual adjusting entries that are required from time to time. Be- 
cause regular month-end journal entries will be included in the 
Standard Journal, entries in the General Journal will be re- 
duced to a minimum. 



Cash disbursements 

Under the procedures recommended, all items payable by an 
advertising agency exclusive of payroll are to be accumulated 
and credited to one of the following accounts-payable control 

1 . Publication space, radio time, radio talent and production, 
and outdoor advertising costs will be credited to the space, 
radio time, radio talent and production, and outdoor ac- 
counts-payable control accounts directly from monthly 
totals shown in the Sales and Costs Journal recapitulation. 

2. The total monthly purchases of advertising materials will 
be credited to the accounts-payable control account from 
the totals in the advertising materials Voucher Register. 

3. The total of all unbillable agency expenditures as shown 
in the Expense Voucher Register will be credited to the 
expense accounts-payable control account. 

Payments chargeable to the proper accounts-payable 
control accounts are obtained directly from adding-ma- 
chine tapes of file copies of checks. This eliminates the 
need for a Cash Disbursements Journal. Checks should be 
typed in triplicate, and two copies should be filed as 

1. Duplicate— file in numerical sequence for the purpose 
of bank reconciliation. 

2. Triplicate— file in numerical sequence separately for 
space, advertising materials, radio time, radio talent, 
production, outdoor and expense. 

Adding-machine tapes of each of the groups of triplicate 
copies will represent the charges to the proper accounts-payable 
control accounts. 

Summary of salaries paid 

A summary showing the salaries paid to each employee and 
distributed by departments within the classifications of direct 
and indirect salaries respectively for each month is shown as 



Figure 58. This summary is required in order to obtain depart- 
mental salary totals for each of the two classifications of direct 
and indirect salaries so that the payroll can be properly recorded 
in the General Ledger. 

payroll summary 



Fig. 58A. Payroll Summary. 


The distribution of direct salaries by departments is pre- 
pared from time reports maintained by key employees. The 
time reports are provided for the purpose of obtaining time 
devoted to each client's work by each employee. The time re- 















Johnson Earley 

Lois Horae 

Bererly Janie 

Jane Reynolds 

Total Radio 


Barbara Plains 

Josephine Lebur 

Geraldlne Hampton 

Helen Wokelw 

Eleanor Crobgnh 

Mary Ann bveeney 

Total Stenos 


Peter I-alty 

Constance Nngrom 

June Ranrrst 

Anne Lagan 

Bertha Schoen 

Total Checking 


Mary Brown 

Shirley Harris 

Lillian Sanford 

Bradley Burns 

Total Bookkeeping 


Bob Crovell 

Jack Camer 

Joe Thcmason 

Total Mailing 


Mary Lynn Johnson 

Lloanor Holly 

Total Racept It Switchboard 


Georgia Graham 

Joseph Washington 

Harry Stein 

Claire Hardin 

Total Miscellaneous 


Fig. 58B. Payroll Summary (continued), 



port form can be devised to cover a semimonthly period and 
should be received from employees on salary payment dates. A 
sample time report form is shown as Figure 10 on page in. 

Space is provided on each time report for computing the 
portion of compensation of each employee attributable to each 
client's work. The time of key employees devoted to new busi- 
ness or administrative work may also be recorded on these time 
reports. Accordingly, a portion of certain salaries may be allo- 
cated to prospects and the total charged to new business expense. 
Administrative time may be charged to Indirect Salary accounts. 

The allocation of compensation is based on the percentage 
that the hours devoted to each client, new prospect, or adminis- 
trative work bears to the total hours reported. The computa- 
tion covering the allocation of compensation for each employee 
should be made only once a month. Where the semimonthly 
time report is used, the computation is mad£ on the report for 
the month-end. Space is provided on this form for recording 
the hours reported on the report for the first half of the month 
so that the total hours for one month are accumulated on the 
time report covering the last half of the month. 

The total of the compensation allocated to the various clients' 
work for each employee is considered a direct salary and will be 
shown on the monthly summary under “Direct Salaries" in the 
proper departmental column. The amount of compensation 
computed for time devoted to new business will be recorded on 
the summary under the heading of “New Business"; likewise, 
the portion of compensation computed for the time devoted to 
administrative duties will be recorded on the summary under 
the heading of “Indirect Salaries" in the proper departmental 

The direct salaries allocable to each client will be recorded 
by departments on the individual monthly client operating 
statement directly from the time reports. The total of the direct 
salaries for each department for all clients will of course equal 
the total direct salaries by departments recorded in the General 
Ledger from the monthly summary. 



Salaries of employees not maintaining time reports may be 
considered as indirect in their entirety. Accordingly, the month- 
ly summary will include all salaries paid each month. A Stand- 
ard Journal entry will be recorded to represent the distribution 
by departments within the classifications of direct salaries, in- 
direct salaries, or new business expense. 

Payroll records 

No particular form of payroll register, earning records or 
payroll checks is recommended to be used specifically for adver- 
tising agencies. Since the advent of unemployment compensa- 
tion insurance, old-age pensions and withholding taxes, it has 
been necessary for all employers to develop payroll records that 
provide for accumulating the necessary information concerning 
these matters. 

Stationers and others have developed payroll systems for this 
purpose and they will serve the advertising agency’s needs well. 
The type of payroll system to be used of course depends on the 
particular conditions in each agency, the most important con- 
sideration being the number of people on the payroll, since ob- 
viously a system designed to use automatic equipment such as 
addressograph machines, bookkeeping machines, etc., would 
not be economical for an agency with only a few people on the 

Systems have been developed which provide the means for 
writing the payroll check and recording the payroll informa- 
tion at the same time. Such systems are usually efficient and 
some of them require no special equipment so that they ad- 
mirably fit the needs of many advertising agencies. 


10. Punchcd-Card Accounting 

I ARIOUS office machines have been developed for use in 
connection with billing, paying, bookkeeping and accounting. 
Many of these devices are made primarily for posting transac- 
tions to ledger accounts or for distributing income costs or 
expenses for the purpose of accumulating totals by classification. 


If an accounting system takes advantage of the controls avail- 
able in the advertising agency business, sortie of the more im- 
portant of which have to do with buying only items which are 
to be billed to specific clients, little posting is required, since 
Accounts Payable and Accounts Receivable Ledgers are not 
needed. When the records are properly designed, much of the 
classification and analysis of income and costs can be accom- 
plished by the proper recording of the transactions as is ex- 
plained in connection with the description of the Sales and Cost 
Journal (see Chapter 9). 

The largest volume of transactions in the agency business is 
in connection with billing and paying the media. It is in this 
area that some large advertising agencies can make use of office 
machines. The most efficient equipment for handling large 
volumes of transactions in connection with billing and paying 
is the so-called tabulating machines operating with punched 
cards. At present, only two manufacturers in the United States 
supply this type of equipment and only one of these sells the 
equipment. Both companies offer the equipment for use on a 
rental basis. 

The machines are considerably more economical on a pur- 
chase basis at today’s prices. Where the volume warrants its use, 



the equipment can well justify itself even on a rental basis. The 
tabulating machines using the punched-card accounting meth- 
od are operating satisfactorily for agencies transacting annual 
volumes in excess of $15,000,000 a year. 


The equipment may be used to perform the following work: 

1. Billing, paying and accounting for newspaper space. 

2. Billing, paying and accounting for magazine and trade- 
paper space. 

3. Billing, paying and accounting for spot radio time. 

4. Billing and accounting for advertising materials. 

5. Payroll preparation and accounting including Govern- 
ment reports. 

6. Analysis of expenses and preparation of Expense Voucher 

7. Analysis of time reports and compilation of time costs 
used in the preparation of cost accounting reports. 

Since only a few of the large advertising agencies transact a 
sufficient volume to warrant the use of punched-card account- 
ing machines, and because the needs of each large agency differ, 
it is not necessary to discuss punched-card accounting in great 
detail. The manner in which this equipment can be used in con- 
nection with billing, paying and accounting for newspaper 
space is merely outlined for purposes of illustration. 

Those agencies wishing further information on punched-card 
accounting can secure it by discussing the matter with system 


Where the punched-card method is used, it is necessary to 
designate by code numbers. Therefore, in billing and paying 
for newspaper space each paper is designated by number in- 
stead of by name. The first step in the procedure is to develop 



a code list showing the name of each paper and the code num- 
ber assigned. To do this the papers are listed alphabetically by 
state, city and paper name. Numbers are then assigned to the 
papers so that the assigned numbers are in strict alphabetic 

Next, each of the agency’s clients is given a code number; 
usually this coding is performed by listing the clients in alpha- 
betic order and then numbering them accordingly. The steps 
listed below are followed: 

1. When contracts are issued to papers, the code number 
of the paper and the code number of the client are noted 
on the contracts. A tabulating card like the one shown 
in Figure 59 is prepared to show the permanent informa- 

Fig. 59. Tabulating Card— Master from Contract. 

tion relative to the contract, that is, the client number 
and name, and paper number and name. These cards 
are placed in a permanent file arranged alphabetically 
by clients and are held until needed in connection with 
billing and paying. 

2. When insertion orders are issued, the code number of 
the paper and the code number of the client are noted on 
the order, together with all the other information that is 
usually shown on an insertion order. After the advertis- 



ing has been checked in the checking department and 
the insertion orders have been audited against publish- 
ers' bills, a tabulating card like the one shown in Figure 
60 is punched from each insertion order. The informa- 
tion punched into this tabulating card includes, among 
other things, the paper code number, the client code 
number, the date of each insertion and the lines used on 
each date, the total lines for all of the insertions on the 

order, the rate per line, the agency’s commission and 
cash discount rates. 

3. The multiplications required are made on the automatic 
multiplication machine so that the gross billing price, 
the net cost and cash discount figures are developed and 
automatically punched into the cards. 

4. The cards are now ready for use in connection with pre- 
paring checks to publishers and invoices to clients. As- 
suming that the prebilling method is used, the prebill 
may have been prepared originally by reference to esti- 
mates, approved schedules or media recommendations. 
In some cases where it is not practical to prepare pre- 
bills in this way, a separate tabulating card may be 
punched from the insertion orders as they are issued. In 



this case, the cards will be punched on the basis of the 
space ordered and the prebill to the client will be pre- 
pared from these cards which later may be used for pur- 
poses other than billing, paying and accounting. 

Assuming that the prebill was sent to the client on 
about the thirtieth of the month of advertising, the cards 
that were punched from the checked and audited inser- 
tion orders are first used for paying publishers. In very 
large advertising agencies, there is little time to perform 
all the work required prior to the cash discount due-date 
so that it would be almost impossible to use the cards 
for billing clients before the publishers’ checks were pre- 

The punched cards are sorted on the automatic sort- 
ing machine so as to bring all cards for one publisher 
together. Heading cards, as punched from contracts, are 
included to print the paper name and other alphabetic 
information on the voucher check. 

Checks are prepared by running the cards through the 
alphabetic tabulating machine, where a voucher check 
similar to the one shown in Figure 21 on page 148, is 

5. The cards that were used to prepare checks for publish- 
ers are punched with the payment date to avoid the pos- 
sibility of using them a second time in the payment 

6. The cards are now held in a file of paid and unbilled 
items until the proper time for invoicing the client. At 
this time the cards are taken from the file and sorted so 
as to segregate the cards applying to each client. Each 
client’s cards are further sorted so as to bring them into 
the order required on the client invoice (usually alpha- 
betic order by state, city and publication name) . 

7. Punched cards are now inserted in the alphabetic tabu- 
lating machine with heading cards that were prepared 



from client contracts. The tabulating machine complete- 
ly prepares the client invoice that is shown in Figure 61. 

8. After the invoice is completed, the cards are punched 
with the invoice date so that they cannot be used a sec- 
ond time in the invoicing process. 

Fig. 61. Invoice— Tabulating. 

9. Simultaneously with the preparation of checks for pub- 
lishers, the tabulating machine automatically punches 
a summary card containing the identification of the 
payee, the date and the amount paid. These cards are 
listed to produce a Check Register. 

10. Simultaneously with the invoicing operation, the tabu- 
lating machine automatically prepares a summary card 
containing the client identification, the classification of 
the medium, the billing price, the agency's cost and the 



cash discount. These cards are used to prepare a Sales 
and Cost Journal. 

11. The total cost of items billed as entered from client in- 
voices to the Sales and Cost Journal is credited to ac- 
counts payable and charged to cost, of sales. The total 
amount of checks issued to publishers is charged to the 
accounts-payable account. The balance in the account 
represents a combination of: 

a. The billed and unpaid items. 

b. The paid and unbilled items. 

This amount is supported by punched cards that are 
billed and unpaid, or paid and unbilled. These cards are 
secured from the files and are listed to support the bal- 
ance in the control account. 

12. After the cards have served their purposes in connection 
with billing, paying and accounting', they are used to 
produce statistical reports including linage reports show- 
ing the total volume of linage used in each paper by 
each client, etc. The cards may also be used to prepare 
position reports showing the comparative advertising 
positions secured by clients in various newspapers. 

The above is a brief outline of the principles used to bill, pay 
and account for newspaper space using the punched-card 

Individual methods must be developed to use the tabulating 
machines successfully to fill the individual requirements of each 
advertising agency. Sometimes different methods must be used 
for separate clients within the agency. This occurs where clients 
demand that the agency submit invoices or prepare checks for 
publishers in accordance with certain specifications rather than 
in the usual manner adopted by the agency. 

The punched-card methods for billing, paying and account- 
ing for magazine and trade-paper space and those for radio time 
parallel in principle those just outlined. Of course, there are 
differences in the detail. Punched-card accounting is used suc- 


cessfully to bill and account for advertising materials, but it 
usually is not economical to use the equipment to prepare checks 
to suppliers since, even in the irgest agencies, not more than 
two or three hundred checks are prepared for suppliers of ad- 
vertising materials at any one time. 

Punched-card accounting is widely used in connection with 
payroll and expense accounting and, in addition, it is ideally 
suited to analysis work required in connection with research 



American Association of 
Advertising Agencies 

lERHAPS the best description of the American Association 
of Advertising Agencies and certainly the most authentic one 
is found in a pamphlet published by the Association which is 
quoted in full: 



American Association of Advertising Agencies* 

1917 by the amalgamation of the New England, New York, PhilaT 
phia. Southern and Western Advertising Agency Associations— to r °‘ 
mote the interests and raise the standards of advertising and o^ e 
advertising agency business. 

It welcomes to membership any advertising agency qualified 0 a id 
in this purpose by reason of its ability to serve the cause of adverf in £» 
its financial soundness and its demonstrated desire to adhere to sol 4 
and ethical business practices. 

As prescribed in the Constitution and By-laws, an agency desiring 
membership “shall be required to make application to the Executive 
Board, which shall in turn refer the application to the sectional Coun- 
cil covering the territory in which the applicant resides. This sectional 
Council shall investigate the professional and moral reputation of 
applicant and shall report its findings on said applicant favorably or 
unfavorably to the Executive Board. Applicants reported on favorably 
by local Council shall be voted upon by the full membership of the 
Executive Board. . . . Applicants reported on unfavorably by local 
Council shall be subject to review by the Executive Board and to 
action according to its discretion. It shall require six negative votes to 
reject any applicant.” 

Election to membership is thus democratic. The local Council to 

* This pamphlet copyrighted by and reproduced through the courtesy of 
The American Association of Advertising Agencies. 



which the applicant belongs acts as a committee of the whole, the 
entire membership being polled. Inasmuch as the sectional Councils 
vary in number of members, there is a variation in the number of 
negative votes required for an unfavorable report to the Executive 
Board, as follows: New York, 7 votes; Central Council, 7 votes; New 
England Council, 3 votes; Atlantic Council, 3 votes; Pacific Council, 
3 votes. 

Any committee called upon to consider an application has no power 
beyond that of recommendation. But the facts on which such recom- 
mendation is based are thoroughly investigated. Hence the full con- 
sideration of an applicant frequently requires time. It is well therefore 
for an applicant to bear in mind that what may seem like undue delay 
in action is attributable to the method of election and to the fact that 
the process of investigation depends upon the voluntary work of 
members and committees, often widely scattered. 

That there may be a known uniformity in judging applicant agen- 
cies, the Qualifications for Membership printed below have been 
adopted by the Executive Board of the Association, and should be 
carefully considered by agencies before sending the applications to 

In considering these Qualifications, as well as the Agency Service 
Standards and the Standards of Practice, it should be understood that 
the Association does not seek to govern its members by dictatorial 
rule^; rather, it seeks to help them govern themselves with a viewpoint 
of syjvind ethics and good business for advertising as a whole. 

T/'he Association does not desire to dictate to its members how they 
shall conduct their business, provided it is fair, capable and honest, or 
to enforce through punitive measures adherence to the policies and 
practices which it deems to be in the best interest of advertising. But 
it does expect its members loyally to support such principles and to 
use good sportsmanship and sound business sense in competing with 
one another. In case of habitual or flagrant misconduct, membership 
may be forfeited by vote of the Executive Board, in accordance with 
the Constitution and By-laws. 

/. Method of Application. Each applicant shall be required to fill 
out completely the printed form known as “Application for Member- 
ship.” No application can be referred to a Council for investigation 
or election unless this form has been properly filled out with all sup- 
plementary information and approved as complete by Headquarters. 

2 . Size of Agency. The size or volume of business of any applicant 
shall not be a factor in determining qualification for membership, 
excepting that agencies inadequately equipped, financially or other- 
wise, shall not be considered eligible. 



5. Location of Agency. The geographical location of the applicant 
agency shall have no bearing upon its admission, but shall only deter- 
mine the Council in which the application shall be voted upon. The 
applicant must have its principal place of business within the United 

4. Age of Agency. No agency shall be considered for election unless 
its principal owners have been doing business as an advertising agency 
for a sufficient length of time to have demonstrated adequate experi- 
ence and ability to insure a stable operation. 

5. Ownership, (a) No applicant agency shall be deemed worthy of 
election whose owners or executives are interested in or connected 
with any advertising medium or any printing, engraving or other busi- 
ness supplying material to its clients, in any way or to any degree which 
might disqualify the agency from giving unbiased advice and service 
to advertisers. 

(b) No applicant shall be deemed worthy of election where evidence 
indicates the agency has been established or is being maintained by 
one or more advertisers having direct or indirect financial interest in 
it. Such ownership would indicate a so-called house agency, organized 
for the purpose of obtaining agency commissions for the advertiser. 

(c) It is important that the principal owners of the applicant’s busi- 
ness be active in the work of the agency. Where there is any consider- 
able proportion of inactive owners, the applicant’s case may be preju- 

6. Experience, (a) In order to protect advertisers against inexperi- 
enced advertising agency service, it is the duty of the Association to 
elect to membership only such agencies as are qualified by experience 
to study the advertiser’s business and products, to analyze his market, 
to form sound judgments, to give constructive advice, and to render 
an adequate quantity and quality of service. 

(b) The applicant agency must be able to furnish reliable refer- 
ences as to both its business and advertising record. 

7. Character, (a) This comprehends, and investigation will be so 
directed as to determine, the applicant agency’s business record, its 
policies and principles, its ethical practices, and its reputation for hon- 
esty, integrity and sincerity of purpose. 

(b) Inasmuch as the Association aims to bring agency operations 
into accord with the best ethical standards of business, it can receive 
into membership only those who give reasonable assurance of readi- 
ness and ability to uphold such standards. 

8. Ability, (a) Advertising ability varies with individual talent and 
need; it is difficult to standardize. Nevertheless, sound judgment re- 



garding the applicant agency's ability can and should be formed by a 
proper study of: 

1. Its staff and facilities 

2. Its methods of doing business 

3. Its past service and work produced for clients. 

(b) The applicant agency is required to furnish a complete list of 
its present clients, indicating the nature of the advertising handled 
for them, how long it has held each account, and the agency which 
previously handled it; also a list of all clients lost within the preceding 
two years, indicating the nature of the advertising handled for them, 
how long it had held each account, and the agency handling it at 

9. Financial Responsibility, (a) It is a paramount aim of the Asso- 
ciation to protect media owners against sustaining credit losses through 
members, and also to protect the advertiser in this connection. There- 
fore, credit responsibility, indicated by a properly prepared and ana- 
lyzed balance sheet, is important in determining the applicant’s 
qualification. Such statement should either be verified by a Certified 
Public Accountant, or if this is not available, sworn to by applicant 
before a Notary. 

(b) Each applicant is required not only to fill out the balance sheet 
accompanying the application blank, but also to give such other evi- 
dence of its financial condition as may be required by the Finance 

(c) The applicant shall be required to furnish as financial refer- 
ences, its banking connections, three media owners and three suppliers 
(printer, engraver, electrotyper, typographer, etc.) with whom it has 
done business. 

(d) No applicant agency shall be admitted to membership until its 
financial condition has been approved by the Finance Committee, in 
accordance with sound banking and accounting standards; except that 
an applicant whose financial condition does not fully meet the Finance 
Committee’s requirements may, in event of unusual merit or desir- 
ability in other respects, be admitted by the Executive Board. 

(e) In no case shall an applicant agency be admitted to membership 
if morally or financially unsafe, regardless of qualifications in any 
other respect. 

10. Recognition. Although it is not essential that the applicant 
shall have obtained agency recognition or recommendation from all 
of the leading organizations which recognize or recommend agencies, 
such recognitions or recommendations are extremely desirable and 
any lack of them must be satisfactorily explained. 



11. Basis of Remuneration, (a) The Association is opposed to the 
dishonorable and illegal practice of rebating commissions and hence 
admits to membership only agencies which retain the full amount of 
compensation granted by media owners to recognized agencies, with- 
out direct or indirect rebating. 

(b) It shall be considered as rebating to supply materials for adver- 
tising on any basis that can be considered as direct, indirect or secret 
rebating. It shall also be considered as rebating to place men in the 
employ of the advertiser at the agency’s expense, or to assume all or 
part of the salary of any employee of the advertiser, or to pay any fee 
or compensation to anyone connected directly or indirectly with the 
advertiser, for obtaining or holding an account; any connection with 
an advertiser or group of advertisers which seems to suggest indirect 
rebating, must be satisfactorily explained. 

12. Scope of Agency Service. Ability to render complete agency 
service in reasonable conformity to the Agency Service Standards 
adopted by the Association in general convention, October 9, 1918, 
shall be a consideration in determining fitness for membership, and 
the applicant shall be required to present with the application blank 
a statement of its experience, ability and facilities, under each of these 
seven agency service requirements, printed herein. . . . 

jj. Ethical and Business Standards. While it is not important to 
know the applicant agency’s form of organization in all of its details, 
or all of its operations, it is essential to know how it operates in rela- 
tion to certain practices, declared by the Association to be unfair prac- 
tices in the light of the obligation agencies have not only to their 
clients but to the media they employ, to the public, and to each other. 
These practices are stated herein . . . under the head of “Standards of 
Practice of the American Association of Advertising Agencies.’’ 

Each applicant agency elected to membership shall accept the re- 
vised Standards of Practice adopted at the Twentieth Annual Meeting 
of the Association , held at White Sulphur Springs , West Virginia , 
April 2c,, i 93 y 



American Association of Advertising Agencies 


Agency Service consists of interpreting to the public, or to that part 
of it which it is desired to reach , the advantages of a product or service. 



Interpreting to the public the advantages of a product or service 
is based upon: 

1. A study of the product or service in order to determine the advan- 
tages and disadvantages inherent in the product itself, and in its 
relation to competition. 

2. An analysis of the present and potential market for which the 
product or service is adapted: 

As to location 

As to extent of possible sale 

As to season 

As to trade and economic conditions 
As to nature and amount of competition 

3. A knowledge of the factors of distribution and sales and their 
methods of operation. 

4. A knowledge of all the available media and means which can 
profitably be used to carry the interpretation of the product or 
service to consumer, wholesaler, dealer, contractor, or other factor. 
This knowledge covers: 



r Quantity 

Circulation J Quality 

[ Location 

Physical Requirements 

Acting on the study, analysis and knowledge as explained in the 
preceding paragraphs, recommendations are made and the following 
procedure ensues: 

5. Formulation of a definite plan. 

6. Execution of this plan: 

(а) Writing, designing, illustrating of advertisements, or other 
appropriate forms of the message. 

(б) Contracting for the space or other means of advertising. 

(c) The proper incorporation of the message in mechanical 
form and forwarding it with proper instructions for the 
fulfillment of the contract. 

( d ) Checking and verifying of insertions, display or other means 

(<?) The auditing, billing and paying for the service, space and 

7. Co-operation with the sales work, to insure the greatest effect from 



The above outline of agency service has been made by the Associa- 
tion to more clearly define what it is, so that advertisers and publishers 
may know what to demand and agencies may know what may be 
expected of them in dealing with the problems of advertising. Some- 
times agencies fail in their obligations to advertisers and publishers 
and to advertising itself by promising or undertaking more than can 
be expected of them in the best interest of all concerned, and some- 
times they fail by not recognizing the full scope of the service basically 
required to make advertising pay. 

For this reason, the above delineation of the fundamentals may 
serve a useful purpose and should be complied with by applicants for 
membership in the Association. The more clearly agency service is 
understood by those who offer it and by those who receive it, the 
sooner will inadequate and unintelligent service by incompetent agen- 
cies be eliminated, and those equipped to render a complete and 
effective service be encouraged in doing so. 



American Association of Advertising Agencies 


We hold that advertising agencies have an obligation not only to 
their clients but to the media they employ, to the public, and to each 

This obligation arises from mutuality of interest. 

The principles which govern the discharge of this obligation are 
various in application; some are rooted in a standard of honor which 
we all acknowledge, and others are based on the requirements of good 
business. What is unfair in agency practice is explicitly stated in this, 
our Standards of Practice. 

Advertising is a business, and it must therefore operate within the 
framework of competition. It is not the intention to limit the vigor of 
competition. Rather, we hold that it is necessary for the health of 

Certain competitive methods are condemned in this code. They are 
condemned not because they are competitive, but because, if univer- 
sally used, they would tend to destroy the business of advertising. 



Professional Practice 

Advertising Copy. It is unsound and unprofessional for the adver- 
tising agency to prepare or handle any advertising of an untruthful 
or indecent character, as exemplified by the following copy practices 
disapproved in a code jointly adopted by the American Association of 
Advertising Agencies and the Association of National Advertisers, and 
also by the Advertising Federation of America: 

1. False statements or misleading exaggerations. 

2. Indirect misrepresentation of a product, or service, through distor- 
tion of details, or of their true perspective, either editorially or 

3. Statements or suggestions offensive to public decency. 

4. Statements which tend to undermine an industry by attributing to 
its products, generally, faults and weaknesses true only of a few. 

5. Price claims that are misleading. 

6. Pseudoscientific advertising, including claims insufficiently sup- 
ported by accepted authority, or that distort the true meaning or 
practicable application of a statement made by professional or 
scientific authority. 

7. Testimonials which do not reflect the real choice of a competent 


Rebating. The advertising agency should retain the full amount of 
compensation granted by media owners without direct or indirect 

It shall be considered as rebating to supply materials for advertising 
on any basis that can be considered as direct, indirect or secret rebat- 
ing. It shall also be considered as rebating to place men in the service 
of the advertiser at the agency’s expense, or to assume all or part of 
the salary of any employee of the advertiser, or to pay any fee or 
compensation to any one connected directly or indirectly with the 
advertiser, for obtaining or holding an account. It shall also be con- 
sidered as rebating to agree to allow cash discounts not earned. 

Extra Compensation. The advertising agency should not take from 
any third party a profit, discount or commission other than the regular 
agency compensation allowed by media owners, unless disclosed to the 


Speculative Materials. In view of its obligation to provide adequate 
service to clients, as well as the sound business principle of making a 


reasonable profit on its effort, the advertising agency should refrain 
from practices that dissipate its income in any unsound or uneconomic 
solicitation for new business. 

It is recognized as unsound, uneconomic and unprofessional to sub- 
mit speculative material in competitive solicitation. 

Offering Credit Extension. It is unsound and uneconomic to offer 
extension of credit or banking service as an inducement in solicitation. 

Unfair Tactics . The advertising agency should compete on merit 
and not by depreciating a competitor or his work directly or inferen- 
tially, or by circulating harmful rumors about him, or by making un- 
warranted claims of scientific skill in judging or prejudging advertising 
copy, or by seeking to obtain an account by hiring a key employee 
away from the agency in charge. 

These Standards of Practice of the American Association of Adver- 
tising Agencies are based on the belief that sound practice is good 
business, that confidence and respect are indispensable to success in 
a business embracing the many intangibles of agency service and in- 
volving relationships so dependent upon good faith. They express 
ideals which are based on a broad experience of what has been found 
to be the best advertising practice. They are feasible and practical, 
involving no restrictions which advertising agencies should not volun- 
tarily adopt. 


The Associations and the 
Recopition Process 


M HE principal source of the advertising agency's revenue is 
from the commissions paid them from the advertising media. 
Legitimate advertising agencies perform services that benefit 
the publishers, radio stations and other advertising media even 
though these functions are performed in discharging the 
agency's direct responsibility to the advertiser. The services that 
the agency performs that are of value to the advertising media 
include the following: 

1 . The creation and development of the advertising message. 

2. The preparation, assembly and delivery of advertising 
materials to the publisher. 

3. The verification of the advertising message as published. 

4. The payment of the advertising space on or before the 
date due as set by the media. 

It is in exchange for these services that the media pay a com- 
mission to the agency. The newspapers, magazines, radio sta- 
tions and outdoor plants in consideration of the services listed 
agree not to sell space to any advertiser except at the gross rate, 
which means that the agency buys the space at eighty-five per- 
cent of what it would cost the advertiser if he were to purchase 
direct from the media. 

The newspapers and magazines, because they do pay this 
commission to the legitimate advertising agency, want to be 
sure that they are paying the commission only to the agencies 
that serve them properly. Advertisers have made attempts to 
buy advertising space below the published rates by organizing 


advertising agencies that really were set up only to serve the 
particular advertiser. These agencies are known as house agen- 
cies. Other attempts to buy advertising space at less than the 
established rates have taken the form of rebated commissions 
on the part of advertising agencies. Some agencies that appar- 
ently were hungry for business have agreed to handle advertis- 
ing and rebate a part of the fifteen percent commission to the 
advertiser. Both the house agency and the rebating practice, of 
course, are against the interests of the publishers, and it is for 
this reason that the publishers have established a process for 
selecting those agencies to whom they will pay the fifteen per- 
cent agency commission. 

Publishers have formed associations for this purpose. These 
associations perform two functions. First, they determine which 
agencies are legitimate agencies and are therefore entitled to 
recognition entitling them to receive the fifteen percent agency 
commission. Second, they investigate the financial condition of 
each agency and determine what amount of credit the agency 
should be entitled to. After making investigations of agencies 
for the purposes discussed, the associations make their recom- 
mendations to the publisher members. No publisher member 
is bound to accept the recommendation of the association, al- 
though it is usual for him to do so. 

For the purpose of securing the information needed in the 
recognition and credit investigation process, each association 
has developed forms and questionnaires which may be secured 
by agencies for the asking. It is entirely possible for an adver- 
tiser to place advertising directly in the advertising media. But 
in such case, the advertiser must pay the full price, and is not 
entitled to the fifteen percent agency commission. Any adver- 
tising agency can place advertising, but unless the agency is 
“recognized” it is not entitled to receive fifteen percent agency 

An agency that is recognized and therefore entitled to receive 
the fifteen percent agency commission may or may not be en- 



titled to credit. When the agency is not entitled to credit, it is 
necessary to pay the publisher in advance. In the case of maga- 
zines, this would be before the date that the magazine goes to 
press. A brief description of the requirements of some of the 
publishers' associations follows: 

Agricultural Publishers Association 
American Newspaper Publishers Association 
Associated Business Papers 
Periodical Publishers Association 
Southern Newspaper Publishers Association 


The following publishers are members of the Agricultural 
Publishers Association: 

American Agriculturist 

Ithaca, N. Y. 

American Poultry Journal 

Chicago, 111. 

Arizona Farmer 

Phoenix, Ariz. 

Arkansas Farmer 

Little Rock, Ark. 

Breeder’s Gazette 

Spencer, Ind. 

California Cultivator 

Los Angeles, Calif. 

Capper's Farmer 

Topeka, Kans. 

The Dakota Farmer 

Aberdeen, S. D. 

Everybody’s Poultry Magazine 

Hanover, Pa. 

Farm and Ranch 

Dallas, Tex. 

The Farmer 

St. Paul, Minn. 

The Farmer-Stockman 

Oklahoma City, Okla. 

Hoard's Dairyman 

Fort Atkinson, Wis. 

Idaho Farmer 

Boise, Idaho 

Kansas Farmer 

Topeka, Kans. 

Michigan Farmer 

Detroit, Mich. 

Missouri Ruralist 

Topeka, Kans. 

Montana Farmer 

Great Falls, Mont. 

Nebraska Farmer 

Lincoln, Nebr. 

New England Homestead 

Springfield, Mass. 



Ohio Farmer 
Oregon Farmer 
Pacific Rural Press 
Pennsylvania Farmer 
Poultry Tribune 
The Prairie Farmer 
Progressive Farmer 
Southern Agriculturist 
Southern Planter 
Successful Farming 
Utah Farmer 
Wallace’s Farmer and 
Iowa Homestead 
Washington Farmer 
Western Farm Life 
Wisconsin Agriculturist 
and Farmer 

An agency wishing to place space with publishers who are 
members of the Agricultural Publishers Association is re- 
quested to submit financial and other information to Agricul- 
tural Publishers Association as a basis for granting recognition 
and credit. The financial information form and the application 
for recognition forms are shown as Figures 62 and 63. The Agri- 
cultural Publishers Association states that three principles are 
suggested as a guide to their actions in recommending agencies. 
They are: 

1. The desire to build the business of agricultural publica- 

2. Protection of the accepted standards of advertising. 

3. The necessity for looking out for the general interests of 
publishers’ relations with agencies. 

Before recommending an agency, the Association believes 
that the agency must be a going business with a properly 


Cleveland, Ohio 
Portland, Ore. 

San Francisco, Calif. 
Harrisburg, Pa. 
Mount Morris, 111. 
Chicago, 111. 
Birmingham, Ala. 
Nashville, Tenn. 
Richmond, Va. 

Des Moines, Iowa 
Salt Lake City, Utah 
Des Moines, Iowa 

Spokane, Wash. 
Denver, Colo. 

Racine, Wis. 


equipped office and staff, preferably handling three or more 
active accounts, at least one of which is using space in farm 
publications. The Association also states that recommended 
agencies must be engaged primarily in the advertising agency 
business with no improper financial interest in the business it 
places. The Association publishes a list of the agencies it rec- 
ommends and maintains a file of financial information on each 
agency, which data are available to the member publishers. The 
following rating system is used by this Association: 

A — $100,000 or over 
B — 50,000 to $100,000 

C — 25,000 to 50,000 

D— 10,000 to 25,000 
E— 5,000 to 10,000 
F — Under $5^000 
G — Cash with order 

1 — Prompt 

2 — Slow— 30 to 60 days 

3 — Slow— more than 60 days 


This Association represents more than eight hundred news- 
paper publishers. It makes recommendations to these publishers 
in connection with the recognition of advertising agencies. 
Principles followed are similar to those given in the case of 
other associations. Recommendations for recognition will be 
granted by the American Newspaper Publishers Association to 
bona-fide agencies properly serving advertisers using space in a 
fair number of member publications. Advertising agencies who 
place newspaper advertising primarily in a local or regional 
area are not considered to need American Newspaper Publish- 
ers Association listing. 

Agencies requiring recommendations from the American 
Newspaper Publishers Association should secure an application 
form from this Association. Recognition by the American News- 


paper Publishers Association consists of a national listing of 
those agencies which qualify financially for a credit rating. 
When the American Newspaper Publishers Association receives 
an application for recognition, a thorough investigation is made 
to verify placing of advertising. Then a statement of facts is 
submitted by mail for a vote from the twenty-four members of 

DaM of filing by Agency 


Dale Kcctivcd by A. P A. 


N Million A vi, Chicago I, lllmim 

Statement, on which to base recommendation coiicl i mug recognition jikI ucdil 

(1) Name of Applicant 
City _ . . 

When I st .hi. shed 

( 2 ) 







I’artnciship . „ 


Individual Ownership 

— □ 



PociOoa or Title 

■ CoancctM* and Addreen 

(4) Is the agency or any of its owners directly or indirectly connected with any concern interested in the sale of advertising 
or its mechanics* If the answer is "yes" please explain 

(S) Are any of your commissions directly or indirectly rebated to the advertiser? If answer u “yes" please explain. 


Fig. 62 a. Agricultural Publishers Association— Application. 


financial statement as of. 


Ron Acrrimlf iiral Publisher** A«oriation— Annliration /rontiniif»d'L 


the Committee on Advertising Agencies. The Committee con- 
sists of newspaper men from all parts of the country all of whom 
are members of the Association. 

As a general rule, the Association's financial requirement is 
that agencies situated in small towns must maintain a minimum 


Give rurnti of concern* with whom you have done busine** Three should be publisher* 




Banking Connection 

tf>) Number of owner* and employee* now devoting oilm tunc to work of the Agency. 

( 9 ) 


wtiKli v*| hive I 1 m 
it will W »Mumd IF 



Agricultural Publisher* Awocuriou 

Fig. 62c. Agricultural Publishers Association— Application (continued). 



liquid capital of five thousand dollars, that agencies in cities 
having a population of approximately five hundred thousand 
or more must have a minimum liquid capital of ten thousand 
dollars, except that for agencies in the City of New York the 
minimum financial requirement is twenty thousand dollars. 

if*p *> 

Fig. 6sd. Agricultural Publishers Association— Application (continued) 


Fig. 62E. Agricultural Publishers Association— Application (continued), 


Like the other associations, the American Newspaper Pub- 
lishers Association makes recommendations in connection with 
the credit of agencies. Such recommendations will be based on 
the financial information sent to the Association by the agency. 
The financial statement which agencies are requested to prepare 
in connection with credit recommendations from the American 


Have you recognition from 

American Ncwapaper Periodical Publisher* 

Publishers Association _ _ - Association — .. — 

Southern Newspaper Associated Business 

Publishers Association . - - Paper*. Inc- 

(Mj Enclose a cop) ol \<>ur »|>ac« order blank used with publications 



The undersigned hereby declares llic information contained on each page of this six page form is 
an accurate statement of facts given for the purpose ol securing credit ftom your incmbciv Should 
material changes occur before a ucw report is requested by juu. wc shall promptly inform you 

H< tad W r*w tar«*r 

Sl«a*tur« ul Utta *t »Mk«r K pttouft 

(Page 6> 

Fic. 62F. Agricultural Publishers Association-Application (continued). 


Newspaper Publishers Association is similar to that required 
by other associations. 


The Associated Business Papers is a trade association of in- 
dustrial, institutional, merchandising and professional business 


Financial Statement 

As of 


Supplied by 


Corporation □ 

Partnership Q 

Individual Ownership . . — .... Q 



Agricultural Publishers Association 

333 N. Michigan Ave. Chicago 1 

Fig. 63A. Agricultural Publishers Association— Financial Statement. 




63B. Agricultural Publishers Association— Financial Statement (continued). 


publications. There are 134 member publishers. The Associa- 
tion recommends to its members those advertising agencies 
which apply for recommendation and meet the requirements. 
The factors considered by the Association in recommending 
advertising agencies are: 

1. The current financial statement of the agency seeking 

Fic. 63c. Agricultural Publishers Association— Financial Statement (continued). 



Fig. 6$d. Agricultural Publishers Association— Financial Statement (continued). 


2. The number and kind of accounts being currently han- 
dled. Like the Agricultural Association, Associated Busi- 
ness Papers requires an agency to be serving a minimum 
of three accounts, at least one of which must be placing 
space in business papers. 

3. Representation that the applicant is a bona-fide agency 
completely autonomous in its operation and free from 
control by either an advertiser or the owner, publisher 
or operator of an advertising medium. 

4 . Reasonable evidence that the agency applicant is quali- 
fied by the past experience of its principals to render bona- 
fide agency service and that it is currently rendering such 
service satisfactorily. 


The Periodical Publishers Association, which was founded 
about forty years ago as the Quoin Club, was the first publishers’ 
organization that dealt with matters of agency credit and recog- 
nition. As a matter of fact, it was this association which estab- 
lished the present system of agency compensation and, except 
for slight adjustments with time and conditions, the principles 
of agency recognition that were laid down at that time still 

The members of the Periodical Publishers Association are: 

Crowell-Collier Publishing Co. 

Curtis Publishing Co. 

Hearst Magazines, Inc. 

McCall Corporation 

Before the process of recognition is begun, it is first necessary 
for the agent to place business with one of the members. He is 
then sent forms which when filled out and returned to the 
Association office form the basis for recommendation to the 
member publishers who are involved. The Periodical Publish- 
ers Association office does not extend recognition— that is up to 
the individual publisher. 



The financial stability of the applicant, his ability to handle 
and develop national advertising, the experience of the agency 
principals, plus the fact that they are not connected with an- 
other medium and can sign a statement that they collect and 
retain the full fifteen percent, are some of the factors that enter 
into the matter of recommendation. 

As a basis for determining credit, Periodical Publishers Asso- 
ciation requests agencies to fill in a financial statement form. 
In computing the working capital of an agency, an important 
element in determining credit recommendations, Periodical 
Publishers Association uses the following rules: 

1. Deducts ten percent from current accounts. 

2. Provides a reserve of twenty-five percent below market 
value on listed securities. 

3. Provides a reserve of ten percent on unbilled advertising 

A superficial examination of the activities of the Periodical 
Publishers Association office might suggest to some that its prin- 
cipal activities revolve around matters of credit. As a matter of 
fact, a large percentage of the time at headquarters is devoted 
to service to agents with respect to the conduct of their opera- 
tions on a business basis. Various facts which are disclosed in 
agency reports which indicate a drift toward unsound business 
practices or are in themselves dangerous tendencies are under 
constant check, with the result that a large part of Periodical 
Publishers Association service to its members represents service 
to advertising agencies. 


The Southern Newspaper Publishers Association is a news- 
paper trade association similar to the American Newspaper 
Publishers Association. It makes recommendations for recogni- 
tion and credit to its member publishers based on an application 
blank and financial statement on forms to be submitted. 

In connection with its recommendations, the Association re- 


quires that for an agency to be entitled to recognition and credit, 
it must be a bona-fide and not a “house” agency; that it must 
have at least two national accounts and a minimum of $3,000 
in liquid assets in excess of liabilities. In addition, the Associa- 
tion gives consideration to the character of the principals and 
their previous experience. 

The associations described here are only some of the better- 
known ones. In addition, there are several associations whose 
members consist largely of publishers of weekly papers and, in 
addition, there are associations whose member publishers are 
confined to those within certain geographical areas. 


Credit Insurance 

CREDIT insurance protects against loss due to the insolvency 
of debtors. At least two large insurance companies issue credit 
insurance policies. When these policies are issued to advertising 
agencies the coverage should be based on the credit exposure 
in connection with each account handled by the agency. Credit 
insurance policies usually are written to cover accounts by 
groups according to their Dun & Bradstreet ratings. For exam- 
ple, a policy could cover a face amount of one hundred thousand 
dollars on accounts rated AAAi, fifty thousand dollars on 
accounts rated AAi, etc. It is also possible to cover non-rated 
accounts. In such case, information is submitted to the under- 
writers who, after investigation, may agree on specific coverage 
for such non-rated companies. 

The credit insurance policies are written subject to normal 
loss. The normal loss is a figure representing average losses in 
the agency field over a period of years. The normal loss provi- 
sion in any policy will be based on the individual circumstances 
surrounding the issuance of the policies, including the insured's 
past experience, the volume of sales and other factors. 

In any event, before the insurance company is liable to the 
insured under the policy, the agency must first have had losses 
equal to the “normal loss" which was provided for in the policy. 
The annual amount of normal losses as provided for by credit 
insurance policies usually represents a very small figure in pro- 
portion to the credit risks. It is an amount which an agency 
could readily bear and in fact for which a reserve for bad debts 
is maintained. Losses in excess of the normal loss amount which 
is provided for in the policies are covered by the insurance. 

Each policy has a face value which is the total amount recov- 



erable from the insurance company. The face value of a policy 
is determined by the amount of the coverage needed and should 
at least equal the maximum credit exposure which the agency 
assumes at any one time on account of one client. 

Credit insurance policies usually provide that the insurance 
company is to pay the insured only ninety percent of the cov- 
ered losses sustained. Credit insurance policies primarily cover 
losses incurred through insolvency of debtors. The insurance 
does not cover losses incurred in connection with disputed ac- 
counts, but some policies provide that if claims are filed with 
the insurance company within ninety days after an account 
becomes past due, the insurance company must collect from the 
debtor or remit to the insured within sixty days from the date 
on which the claim was filed by the insured. 

Credit insurance policies usually provide that the insured 
may file claims with the insurance company, after which it be- 
comes the burden of the insurance company to make collection 
from the debtor. 

Some policies provide that, where collection is made by the 
insurance company within fifteen days, the insurance company 
can make no charge for the service. After the fifteen-day period, 
the insurance company is to receive collection fees in accord- 
ance with the Commercial Law League rates. Policies written 
for commercial concerns normally provide insurance on ac- 
counts resulting from the shipment of merchandise; but one 
important insurance company issuing policies to advertising 
agencies provides through an “Advertising Rider” that the cov- 
erage includes all commitments made and work started as the 
result of an advertiser's order, even though the actual billing 
may not be done until a later date. 

The cost of insuring accounts receivable is contingent on 
many factors some of which are: 

Sales volume. 

Amount and quality of accounts covered. 

Face value of policy. 



In considering credit insurance, the agency executive should 
realize that this insurance should be used to cover risks that are 
beyond those that the agency is able to withstand. Over the 
average of all cases, the premiums paid for any type of insurance 
far exceed the claims paid by insurance companies. This is nec- 
essarily so because out of the premium income, in addition to 
providing for claims, the insurance company must provide for 
sales expense, administrative expense, legal expense, litigation 
costs and profits. It is only economical to insure against risks 
that cannot be withstood, and it is not sound business to insure 
against risks that a company can afford to take. 

The credit exposure of an agency can and often does exceed 
its total capital. Many times an agency has a credit exposure on 
one client's account that is in excess of the total net worth of the 
agency. These are the kind of risks that are worth insuring. 
Under the normal terms of credit insurance policies, the very 
small risk cannot be insured since the credit insurance policy 
provides that the agency must sustain a normal annual loss 
before claims will be paid under the credit insurance policy. 

To figure the amount of credit insurance coverage that is 
required, the following steps should be taken: 

1. Each account handled by the agency should be listed 
showing the maximum amount of credit exposure incurred 
at any one time on each account. 

2. The Dun 8c Bradstreet rating for each account should be 
secured and noted opposite the name of each such client. 

3. The greatest credit exposure for each rating group should 
be determined by finding the client within the credit rat- 
ing group that produces the largest single exposure. For 
example, if there are three clients all within a rating of 
B plus 1, if the credit exposure on one client is ten thou- 
sand dollars and on each of the other two is twenty thou- 
sand dollars, then the highest single exposure within the 
B plus 1 group is twenty thousand dollars. 

4. The face value of the policy is the grand total of the 


amount that can be collected from the insurance company. 
The face of the policy must at least equal the highest credit 
exposure on any one account as computed in the preced- 
ing paragraph, but the face of the policy usually is set at 
a figure greater than this. The amount of coverage must 
be determined individually in each case after taking all 
of the circumstances into consideration. 

In addition to the protection that an agency secures through 
the purchase of credit insurance, the following factors should 
be considered: 

1. If an account although not insolvent becomes slow pay, 
the amount due can be collected from the insurance com- 
pany if the insured files the account with the insurance 
company after it is due but before it becomes ninety days 
past due. In such event, the insurance company must remit 
to the insured within sixty days from the date on which 
the insured filed his claim. The account may eventually 
pay in full, but if the agency did not have the credit in- 
surance coverage and had to wait for months to collect 
from the client, the working capital of the agency could 
be entirely consumed in paying the media costs since this 
would be necessary in any event in order for the agency 
to maintain its credit standing. 

2. Where credit insurance is carried, it is possible for the 
agency to determine whether the credit insurance com- 
pany considers its clients or prospects good risks. If the 
insurance company is willing to cover an account for the 
highest amount of credit exposure that the agency assumes, 
this may be taken as a favorable factor. If the insurance 
company will not insure an account for the amount of the 
agency's exposure, the refusal of the insurance company 
would indicate that the risk is unsafe for the agency. 
Credit insurance companies will insure unrated accounts, 
and agencies who carry credit insurance should submit the 
names of clients and prospects to the insurance company 



to secure protection even though the accounts are not 
rated. The insurance company in such cases will advise 
the agency what amount of coverage they will accept on 
such accounts. 

3. The credit insurance policies provide that the insurance 
company will undertake to make collections from past-due 
accounts. The collection charges are nominal. This may 
have two advantages for the insured agency: First, it takes 
the matter of collection out of the hands of the agency 
and puts the responsibility on the insurance company 
which has trained personnel and all the facilities required. 
Second, it allows the agency to tell its clients that it must 
effect collections or file delinquent accounts with the in- 
surance company. When a client requests special terms, 
they cannot be extended because, if they were, the insur- 
ance might be jeopardized. 

The insuring clause of a credit insurance policy issued by one 
of the larger companies is quoted below: 

London Guarantee and Accident Company, Limited, 
(hereinafter called the company) 

IN CONSIDERATION of the representations and warranties made 
in the application for this or any other Policy of Credit Insurance is- 
sued to the Insured by the Company, which are hereby made a part 
of this Policy, and of the payment of the premium as hereinafter pro- 
vided, and subject to the Conditions and Stipulations set forth on the 
within pages, which are also hereby made a part of this Policy. 

HEREBY INSURES of , hereinafter 

called the Insured, engaged in the business of , 

against loss to an amount not exceeding Dollars 

(} ), which shall be the amount of this Policy, due to insol- 

vency, only as hereinafter defined, of debtors, which insolvency shall 

have occurred within the Policy term beginning the day of 

19 , and ending the day of 

19 , and which loss shall consist of the unpaid purchase 

price of the Insured’s bona fide sales of shipped dur- 

ing said term and actually delivered in the usual course of business 
to individuals, firms, co-partnerships or corporations, in the United 


States of America, the Territories thereof, the Dominion of Canada, 
or Colony of Newfoundland; and which loss shall have been covered, 
filed and proven as hereinafter stipulated. From the aggregate amount 
of the net losses ascertained as hereinafter provided, there shall be 
deducted Ten per cent (10%) thereof as co-insurance, and from the 
remainder a Normal Loss to be borne by the Insured, calculated at 

the rate of per cent upon the total gross sales so made 

during said term, less (a) all allowances actually made on said sales 
during the said term and (b) the invoiced price of any of said sales 
returned and accepted by the Insured during said term; but such 

Normal Loss so to be deducted shall be not less than $ ; 

and the remainder, not exceeding the amount of this Policy, less any 
amount owing to the Company, shall be the amount payable by the 

This Policy shall not cover any loss occurring prior to the payment 
of the Premium, although the Policy may have been delivered, nor 
any loss occurring after the Policy term, nor any loss that is not a 
valid and legally sustainable indebtedness or has not been allowed 
against the debtor or the debtor’s estate. 

ACCIDENT COMPANY, LIMITED, has caused this Policy to be 
signed by its authorized United States Manager, acting under power 
of attorney, but the same shall not be binding upon the Company 
unless countersigned by its New York Resident Manager of its Credit 

Insurance Department in the City of NEW YORK, this 

day of 19 

The conditions and stipulations of this policy are: 

Conditions and Stipulations 

1— PREMIUM— A premium of Dollars ($ ) 

shall be paid to the Company when application be made for this 

ing of a debtor is hereby defined and understood to mean the rating 

of said debtor by the Mercantile Agency, hereinafter 

termed Agency, on date of shipment. 

The latest published rating book of said Agency shall be used to 
determine a debtor’s governing rating for coverage on shipments 
made from the first day of the month named by said book to the first 
day of the month named by the next subsequent book, except that 
when said Agency change a rating by written report, compiled and 



issued to the Insured during the currency of the said latest published 
book or within sixty (60) days prior to the date thereof, the latest 
such report, of which the Insured shall have received a copy from said 
Agency, or written notice thereof from the Company, shall be used 
to determine said debtor's governing rating for coverage on ship- 
ments made after receipt by the Insured of such written report from 
the said Agency, or written notice thereof from the Company. 

No loss shall be covered by this Policy unless the debtor to whom 
the goods were shipped and delivered shall have had, at the date of 
shipment, a governing rating for which coverage is specified in the 
subjoined “Table of Ratings and Coverage"; nor shall any loss be 

covered on any account sold on terms longer than days, 

including dating; nor any loss on any account sold under any “style 
name" not mentioned in this Policy. 

No loss shall be covered by this Policy if the Insured shall have 
made any agreement with respect to the account of a debtor which 
would, at the date of filing with the Company or subsequent thereto, 
prevent or delay any action thereon, or which would interfere with 
the exercise of the Company's judgment upon any proposal made by 
said debtor to his creditors, without first having received the Com- 
pany’s consent thereto in writing. 

The gross amount covered on the total indebtedness of any one 
debtor shall not exceed the total amount owing to the Insured by 
said debtor at the date of insolvency, nor exceed the amount set op- 
posite the governing rating of said debtor in the subjoined “Table of 
Ratings and Coverage". 

If the indebtedness of a debtor at the date of insolvency be for 
shipments made under different governing ratings, the gross amount 
covered on the total of such indebtedness shall not exceed the largest 
amount set opposite any one of said debtor's governing ratings in 
the above “Table of Ratings and Coverage"; if a change of rating re- 
duces the limit of coverage applicable to a debtor, shipments made 
thereafter, and while said debtor owes the Insured a gross covered 
amount equal to or in excess of the amount set opposite the latest rat- 
ing, shall not be covered; provided, however, that if shipments be 
made under said latest rating while said debtor owes the Insured 
less than said amount, the gross amount covered on the total of such 
indebtedness shall not exceed the amount set opposite said latest 

(NAMES NOT IN BOOK)— A shipment to a debtor whose name, 
at the date of shipment, does not appear in the said latest published 
book shall be governed by the rating in the latest report of the said 
Agency on said debtor compiled within four months prior to the 



shipment, and if no such report shall have been compiled within four 
months prior to the shipment, then by the rating in the first report 
of said Agency on said debtor compiled within four months after the 

3- INSOLVENCY DEFINED-The Insolvency of a debtor for the 
purposes of this Policy shall be deemed to have occurred when: 

(1) A debtor shall have absconded; 

(2) A sole debtor shall have died; 

(3) A sole debtor shall have been adjudged insane; 

(4) A receiver shall have been appointed for a debtor; 

(5) A debtor shall have transferred or sold his stock in trade in 

(6) A writ of attachment or execution shall have been levied on 
a debtor's stock in trade and said stock sold thereunder, or 
the writ returned unsatisfied; 

(7) A debtor shall have made a general offer of compromise to 
his creditors for less than his indebtedness; 

(8) There shall have been a recording of or taking possession 
under a chattel mortgage given by a debtor on his stock in 

(9) A debtor’s business shall have been assigned to or taken over 
by a committee, appointed by a majority in number and 
amount of his creditors; 

(10) There shall have been a recording of or taking possession 
under an assignment or a deed of trust made by a debtor for 
the benefit of his creditors; 

(11) A voluntary or involuntary proceeding shall have been insti- 
tuted to adjudge a debtor bankrupt; 

(12) A proceeding for the relief of a debtor shall have been insti- 
tuted in a court of bankruptcy. 

4- PAST DUE ACCOUNTS— When the Insured, during the term of 
this Policy, shall have filed with the Company for collection, an ac- 
count against a debtor not insolvent as defined in Condition 3, at the 
time the account was so filed, then so much of such account as was due 
and payable at the date of filing, but not more than ninety (90) days 
past due under the original terms of sale, shall be treated under this 
Policy as though the debtor were insolvent as defined therein. Every 
such account, so filed, shall include all indebtedness then due and 
payable, and shall be accompanied with a Notification of Claim on 
the form prescribed in Condition 5. 

shall, within twenty (20) days after acquiring knowledge of a debtor's 



insolvency as defined in Condition 3, and within the term of this Pol- 
icy, file Notification of Claim with the Company, on the form pre- 
scribed and furnished by the Company and forthwith place the entire 
account against such debtor with the Company for attention and col- 
lection; if information of a debtor's insolvency as defined in Condition 
3 shall be received by the Insured too late to notify the Company 
during the term of this Policy, then such Notification of Claim may 
be filed with the Company within, but not later than, twenty (20) 
days after the Policy term. 

Every Notification of Claim filed hereunder or under Condition 4 
shall be accompanied with an itemized statement in duplicate, show- 
ing fully the dates of shipment, terms of sale, and the true condition 
of the account, together with all notes or other papers evidencing the 
same, and any guarantees, securities, or other documents relating 
thereto; and the Insured shall, upon request, promptly furnish all 
proofs, or any information necessary for the proper handling of any 
account in any proceeding. 

All Notifications of Claim must be received by the Company within 

the time above specified, in its office at 

and shall be handled upon the terms as provided in Condition 6. No 
claim withdrawn by the Insured may be refiled as a claim under this 
or any other Policy. 

The receipt, retention or handling by the Company of any claim 
filed by the Insured under this Policy shall not constitute a waiver 
of any of the terms, conditions or stipulations of this Policy, nor an 
acceptance of such claim as covered by this or any other Policy. 
CHARGES— The Company assumes responsibility for all money col- 
lected by its Agents and Correspondents and will promptly remit all 
amounts due the Insured as collections are effected. 

When a claim is disputed, in whole or in part, or when the Com- 
pany deems it necessary for the purpose of enforcing collection from 
a debtor, guarantor, surety or endorser, or of participating in any 
proceeding involving the estate of a debtor, guarantor, surety or en- 
dorser, the Insured shall authorize suit or other proceedings and shall 
promptly advance and pay suit fees, costs and expense required in 
connection therewith; failure so to do shall be deemed a withdrawal 
of said claim by the Insured. 

When any return of merchandise or direct payment be made to the 
Insured, or when a claim be withdrawn by the Insured, the costs and 
charges as hereinafter provided shall be paid to the Company by the 
Insured the same as if collection had been effected through the Com- 



When, in the handling of a claim filed under this Policy, the Com- 
pany deems it necessary or expedient to endorse notes, checks or 
drafts on behalf and in the name of the Insured, and to deposit said 
notes, checks or drafts, or the proceeds of collection thereof, in the 
account or to the credit of the Company, in any of its depository 
banks, the Company shall have the right so to do. 

Except as otherwise provided herein, the Insured shall pay to the 
Company the following charges on collections effected on each claim 


No charge shall be made on any collection effected within 
fifteen (15) days after receipt of claim by the Company, but 
at the expiration of such fifteen (15) day period, if any bal- 
ance remains unpaid, the Company will continue to handle 
the account subject to the charges hereinafter specified; nor 
shall any charge be made on any collection effected on any un- 
disputed or unlitigated claim, insofar as covered, provided the 
debtor is, at the date of filing, insolvent as defined under Sub- 
divisions (4), (11), or (12) of Condition 3. 

(2) Whenever the Company effects collection without the services 

of an attorney: 

Seven and one-half per cent (7i/2%) on the first Five Hundred 
Dollars ($500.00); 

Five per cent (5%) on the excess over Five Hundred Dollars 
($500.00) ; 

Minimum charge Three Dollars and Seventy-Five Cents 
($3.75) , except on collections under Seven Dollars and Fifty 
Cents ($7.50), charge to be Fifty per cent (50%); 

(3) Whenever the Company effects collection through the services 

of an attorney: 

Fifteen per cent (15%) on the first Five Hundred Dollars 

Ten per cent (10%) on the excess over Five Hundred Dollars 
($500.00) ; 

Minimum charge Seven Dollars and Fifty Cents ($7.50) , ex- 
cept on collections under Fifteen Dollars ($15.00) , charge 
to be Fifty per cent (50%) . 

In localities where collection charges are established by law or by 
Bar rules, such law or Bar rules shall govern. 

When litigation or unusual proceedings shall have been authorized 
by the Insured, a reasonable non-contingent attorney’s fee (minimum 



Seven Dollars and Fifty Cents — $7.50) shall be paid by the Insured. 
When collection charges apply such attorney’s fee shall be in addition 
thereto, but the whole shall not exceed Fifty per cent (50%) of the 
amount collected. 

The remittance to the Insured, with or without charge, of amounts 
collected on claims filed, and acceptance thereof by the Insured, shall 
not be construed as a final determination of allowable loss, nor as a 
waiver either by the Company or the Insured of any of the terms, 
conditions or stipulations of this Policy. 

7— FINAL STATEMENT OF CLAIM-If any claim for excess loss 
be made under this Policy, a Final Statement of Claim, duly sworn to, 
shall be made by the Insured after the Policy term, upon blank forms 
which will be furnished by the Company upon application. Such 
Final Statement of Claim must be received by the Company at its 
Executive Offices in New York, N. Y., within thirty (30) days after 
the policy term. No claim for loss may be made nor shall any claim 
for loss be allowed under this Policy unless it shall have been set forth 
in such Final Statement of Claim. 

ment shall be made within a period not to exceed sixty (60) days 
after the receipt by the Company of the Final Statement of Claim 
and the amount then ascertained to be due the Insured under this 
Policy shall at once become payable. 

To ascertain the net loss in any adjustment under this Policy, there 
shall be deducted from each gross loss covered, filed and proven here- 

(1) All amounts collected from the debtor or obtained from any 
other source; 

(2) The invoiced price of goods returned, reclaimed or replevined, 
when such goods are in the undisputed possession of the In- 

(3) Any discount to which the debtor would be entitled at the time 
of adjustment; 

(4) Any amount mutually agreed upon as thereafter obtainable; 

(5) Any legally sustainable set-off that the debtor may have against 
the Insured. 

If no mutually satisfactory agreement be reached as to the amount 
thereafter obtainable on any loss, the Company will allow the unpaid 
part of such loss, so far as covered. If the entire indebtedness of every 
kind of a debtor to the Insured at the date of insolvency be in excess 
of the gross amount covered by this Policy, then the above deductions 
shall be made pro rata, viz: in the ratio which the gross amount cov- 



ered bears to the whole of such indebtedness. Having made the fore- 
going deductions from each gross loss covered, filed and proven under 
this Policy, the remainder shall be the net loss. 

From the aggregate amount of the net covered, filed and proven 
losses thus ascertained, there shall be deducted Ten per cent (10%) 
thereof as co-insurance; then from the balance, the Normal Loss; the 
remainder, (not exceeding the amount of this Policy) , less any amount 
owing to the Company, shall be the amount payable to the Insured. 

If any covered and filed claim of the Insured against a debtor be 
disputed, in whole or in part, the same shall not be allowed in any 
adjustment under this Policy until such disputed claim shall have 
been finally determined to be a valid and legally sustainable indebted- 
ness against the debtor or the debtor’s estate, at which time such claim, 
so far as covered under this Policy, shall be adjusted and the amount 
due the Insured shall then be paid. 

The Insured shall assign to the Company all claims allowed in ad- 
justment together with all securities and guarantees relating thereto, 
except those claims upon which the amount thereafter obtainable 
shall have been mutually agreed upon, and shall warrant the legal 
validity of the indebtedness for the amount of such claims, and shall 
upon demand reimburse the Company for any amount paid by the 
Company to the Insured on any indebtedness which shall not have 
been allowed against the debtor or the debtor’s estate, together with 
the expense of any action thereon. Any claim assigned to the Com- 
pany which shall not have been covered in full by this Policy shall be 
handled by the Company for the joint benefit of the Insured and the 

9— DISPOSAL OF SALVAGE— The Company will, after deduction 
of collection charges and expenses, retain the net amount realized on 
any claim assigned to it in adjustment, or a pro rata part thereof as 
provided in Condition 8, remitting any balance to the Insured. The 
Company will also remit to the Insured a portion of the net amounts 
realized on accounts assigned to it equal to the percentage of co-insur- 
ance thereon borne by the Insured. 

Any payments applied to interest by the debtor or his estate and 
any amounts realized as interest or dividends on securities assigned 
to or acquired by the Company shall be allotted to the Company and 
the Insured as above provided. If the net amounts realized or retained 
by the Company, exclusive of such payments of interest or dividends, 
on the claims assigned to it in adjustment shall in the aggregate ex- 
ceed the total amount paid to the Insured under this Policy the Com- 
pany shall reassign such claims and refund such excess to the Insured. 

10— COLLATERAL BENEFITS— This Policy is not assignable, but 



the Company will provide, upon written request from the Insured, 
that any excess loss ascertained to be payable as provided in Condition 
8 shall be paid to any Bank, Trust Company or other payee designated 
by, and for the account of, the Insured. 

1 1— TERMINATION— If, during the term of this Policy, the Insured 
shall become insolvent, as defined in any of the Subdivisions of Con- 
dition 3, or shall cease to continue the business described in this Pol- 
icy, as heretofore carried on, or shall go into liquidation, or shall seek 
a general extension from his creditors, or being a partnership shall 
be dissolved, then this Policy shall thereupon terminate as to coverage 
on shipments made thereafter, and no past due account may be filed 
thereafter under the provisions of Condition 4 of this Policy. If any 
claim for excess loss is made, the Final Statement of Claim shall be 
filed by the Insured as provided in Condition 7 of this Policy. 

Temporary interruption by fire or by strike, or by the death or 
withdrawal or admission of a member of a partnership composed of 
more than two members, shall not so terminate this Policy. 

12- GENERAL PROVISIONS-The premium, for this Policy shall 
be paid by check to the order only of the LONDON GUARANTEE 

The Company will acknowledge the receipt of all Notifications of 
Claim and the Final Statement of Claim, but neither the acknowl- 
edgment nor the retention thereof by the Company nor its failure to 
acknowledge receipt thereof, shall be deemed an admission of liability 
or a waiver by the Company of any of the terms, conditions or stipula- 
tions of this Policy. 

The representations and warranties made by the Insured in the 
application for this or any other Policy of Credit Insurance issued to 
the Insured by the Company are the basis for this Policy and a part 
thereof. False warranty, misrepresentation, concealment or fraud in 
obtaining this or any other Policy of Credit Insurance issued by the 
Company to the Insured, or in any Notification of Claim or Statement 
of Claim filed under this or any other Policy, or in the proof or adjust- 
ment of any claim for loss under this or any other Policy, shall void 
this Policy from its beginning and the premium paid shall be for- 
feited to the Company. The Insured shall permit the Company at any 
reasonable time to examine and take extracts from the books, securi- 
ties and papers of the Insured bearing upon any matter involved in 
any Notification of Claim or Statement of Claim filed under this Pol- 
icy, or in any adjustment under this Policy, or in any representation 
or warranty made in the application for this or any other Policy of 
Credit Insurance issued by the Company to the Insured, or in any 
claim made either by the Insured or by the Company under this Policy, 



and in that connection the Insured shall give such assist*d?ce and in- 
formation as the Company shall require, but no such examination, 
investigation or proceeding shall be deemed an admission of liability 
or waiver of any of the terms, conditions or stipulations of this Policy. 

The rendering of any estimate or statement or the making of any 
settlement shall not bar the examination herein provided for, nor the 
Company's right to unpaid service charges, nor to a refund of any 
amount overpaid the Insured in any adjustment by the Company, nor 
bar the right of the Insured to a refund of any amount overpaid the 

No agent shall be authorized to make any alteration in, or addition 
to, this Policy, nor to waive any of its terms, conditions or stipula- 
tions; and no addition to, nor alteration in, nor waiver of, any of the 
terms, conditions or stipulations of this Policy shall be valid unless 
expressed in writing and signed by the United States Manager of the 
Company; nor shall notice to, or knowledge of, any agent or any other 
person be held to effect a waiver or change in any part hereof. 

No suit or action on this Policy shall be brought or be sustainable 
until after the full compliance by the Insured with the terms, condi- 
tions and stipulations of this Policy, nor unless commenced within 
twelve (12) months after its termination. If the said limitation of 
time for the commencement of suit be prohibited by any specific 
statutory provision in relation thereto, in force in the State named 
in this Policy as the address of the Insured, the said limitation shall 
be hereby amended to agree with the minimum period of limitation 
permitted by said statutory provision. 

All terms, conditions and stipulations of this Policy shall be deemed 
conditions precedent to any claim by the Insured. 

The credit insurance Interim Adjustment Rider issued by 
one company to provide for payment within sixty days of filing 
a claim follows: 

Rider No. 




BY THIS RIDER attached to and made part of Policy No. 
, issued to of It is here- 
by understood and agreed that for the purpose of enabling the Insured 



to receive adjustments from time to time under this Policy, and prior 
to the final adjustment, the Insured shall be privileged, at any time 
prior to the time fixed in this Policy for the filing of the Final State- 
ment of Claim, to file with the Company, at its Executive Offices in 
New York, N. Y., Preliminary Statements of Claim for excess loss, 
upon blank forms which shall be furnished by the Company upon 
application, and the Company within sixty (60) days after the receipt 
of any such Statement of Claim shall adjust all accounts mentioned 
therein, in accordance with the provisions of Condition 8 of this Pol- 
icy, that were filed within the time provided by, and which come 
within the terms, conditions and stipulations of, this Policy, and im- 
mediately pay to the Insured the amount of excess loss, if any, then 
found due. 

In no event shall the total net amount payable by the Company 
in all adjustments made under this Policy exceed the amount of this 
Policy, nor shall the amount of Normal Loss deducted in all adjust- 
ments under this Policy exceed in the aggregate the amount of the 
agreed Normal Loss as ascertained in the Final Adjustment. 

If the Company has paid to the Insured, in all interim adjustments 
under this Policy, prior to ascertaining the actual amount of the afore- 
said agreed Normal Loss any amount in excess of the amount which 
would have been paid if the amount of such actual Normal Loss had 
been ascertainable at the time of such payment, the Insured shall re- 
fund such excess to the Company. 

Nothing herein contained shall be held to vary, alter, waive or ex- 
tend any of the terms, conditions or stipulations of this Policy, other 
than as above stated. 


United States Manager. 

Resident Manager Credit Insurance Department. 

The Advertising Rider that is of the greatest importance in 
connection with credit insurance issued to advertising agencies 
follows. The effect of this rider is to insure the agency against 
losses from insolvency on advertising space that the agency is 
committed for even though the space has not yet been billed to 


the agency. This covers such items as non-cancellable magazine 
space, radio time, talent, outdoor space, etc. 


BY THIS RIDER attached to and made part of Policy No. 
issued by the London Guarantee and Accident Com- 
pany, Limited, to of It is hereby under- 

stood and agreed that all amounts owing to the Insured by debtors 
in connection with advertising business between the Insured and such 
debtors, shall be deemed as arising from shipments of merchandise, 
and the governing ratings of such debtors shall be determined as 

On advertising business, for which orders are accepted by the In- 
sured during the term of this Policy the rating assigned to the debtor 
by the governing mercantile agency, at the date of the acceptance of 
the order, shall govern. 

On advertising business for which orders were accepted by the In- 
sured prior to the beginning of this Policy the rating assigned to the 
debtor at the beginning of the Policy shall govern; provided, how- 
ever, that no part of any account owing to the Insured, which was past 
due at the beginning of this Policy, whether billed by the Insured or 
not, shall be covered by this Policy. 

For the purposes of this Policy the date of shipment shall be con- 
strued to be the date upon which the debtor becomes obligated to the 
Insured for the payment of the account, and the Insured shall render 
invoices in due course to cover such obligations. 

Nothing herein contained shall be held to vary, alter, waive or ex- 
tend any of the terms, conditions or stipulations of this Policy other 
than as above stated. 


Manager for the United States. 

Resident Manager Credit Insurance Department. 


Analyzing Dun & Bradstreet 
Reports and Financial Statements 


Jl OR information concerning financial responsibility, busi- 
ness men refer to published facts issued by reporting services 
such as Dun Sc Bradstreet. 


Dun Sc Bradstreet issues five classes of reports: 

1 . The Synopsis Report 

2. The Analytical Report 

3. The Specialized Report 

4. Foreign Report 

5. Municipal Report 

The first three classes of reports have the same basic charac- 
teristics but each type of report is developed to fit the general 
credit requirements of Dun Sc Bradstreet subscribers. 

The Synopsis Report is furnished for the majority of com- 
panies usually covering smaller enterprises. The Analytical Re- 
port is usually issued on larger companies and contains more 
detailed information than the Synopsis Report. The Specialized 
Report is usually issued to cover wholesalers and large retailers 
who are important from a credit viewpoint, but where the busi- 
ness structure is less complicated than that of manufacturers 
for whom the Analytical Report is issued. The Specialized Re- 
port generally contains more detailed information than a Synop- 
sis Report and probably less than the Analytical Report. 

The Foreign Reports cover foreign companies and contain 


the same type of information as that furnished on domestic con- 
cerns. Municipal Reports cover municipalities and their 
finances and of necessity take a different form from that of the 
reports on business concerns. 

Dun 8c Bradstreet issues reference books listing about two 
and one-half million names, and each name is rated by a code 
which consists of two elements: A letter is used to rate financial 
ability, and a numeral is used to indicate payment record and 
general character. Thus a rating in a Dun 8c Bradstreet report 
might appear as “F214.” Following is a code list showing the 
meaning of each of the rating symbols issued by Dun 8c Brad- 

Estimated Financial Strength 








$500,000 to 



300,000 to 



200,000 to 



125,000 to 



75,000 to 



50,000 to 



35,000 to 



20,000 to 



10,000 to 



5,000 to 



3,000 to 



2,000 to 



1,000 to 



500 to 



Up to 


Credit Appraisal 



Fair Limited 







n/ 2 











li/ 2 


2i/ 2 




2i/ 2 

li/ 2 






2./ 2 


li/ 2 







3i/ 2 

2i/ 2 


3 V* 


















* When a numeral ONLY (1, 2, 3 or 4) appears it is an indication that the 
financial strength, while not definitely classified is considered within the 
range of the ($) figures in the corresponding bracket and that a condition is 
believed to exist which warrants credit in keeping with that assumption. 



All of the Dun 8c Bradstreet reports have the same general 
characteristics, including the name of the company, the address, 
the rating code letters and numerals, a synopsis of the business 
summarizing the important facts and containing an outline of 
the information needed to determine the financial ability of 
the company reported. 

The reports contain a history of the business, a section on the 
method of operation describing what the company does, the 
type of merchandise manufactured or sold, the price range cov- 
ered, the type of customers, the credit terms usually extended, 
an analysis of the types of transactions— that is, cash, charge 
account, budget, etc., the size and type of plant and equipment 
owned, etc. The reports contain a brief description of the fire 
hazard and then a “statement/' The statement gives the most 
important facts concerning the financial ability and integrity 
of a business. The purpose of this section of the report is to show 
the amount of capital in use, how it is used and how much if 
any of the capital is borrowed. 

Usually, reports contain a balance sheet, but where concerns 
refuse to furnish this information, other figures are secured by 
Dun 8c Bradstreet from interviews with the "trade," banks and 
other sources. In addition to balance-sheet figures, reports often 
contain operating statements and other important figures. Some- 
times figures are included to show the sales and profit trend for 
the past few years. In addition to the statement section of the 
report, it usually contains a section called Trade Reports. The 
purpose of this section of the report is based on interviews and 
other research, and shows: 

1. The highest credit granted. 

2. The amount now owing. 

3. The amount past due. 

4. The terms of sale and manner of payments. 

Where the survey reveals any special information, this special 
information is reported under a heading called "Remarks." This 



section of the report is extremely valuable to advertising agen- 
cies since it shows the highest amount of credit granted by any 
of the concerns surveyed. When an agency is called on to report 
this information regarding a client, it should be remembered 
that the credit granted an agency's client is really the highest 
credit exposure that the agency takes, including not only the 
amount owing at any one time, but also the non-cancellable 
items for which the agency is committed on behalf of the client. 

Many concerns cannot be rated by Dun 8c Bradstreet or other 
reporting agencies. If a concern is listed but not rated, this is 
not necessarily unfavorable, but does indicate that for one rea- 
son or another the financial ability and integrity cannot be 
indicated by the code method. Companies such as professional 
services that do not seek credit cannot be rated because they 
usually do not furnish the information upon which a rating 
may be based. Ratings are not permanent and it is wise for the 
agency occasionally to review the credit rating of its clients and 

Where an agency carries credit insurance, it is extremely im- 
portant to watch the ratings of insured accounts since usually 
the policies cover each rating group rather than each individual 
account. If the rating of a client changes, it is important for the 
agency to check the credit insurance policy to be sure that the 
insurance covers the rating group to which the client or pros- 
pect has moved. 


The Dun 8c Bradstreet reports that have been discussed mere- 
ly furnish the information from which the businessman must 
determine the financial ability of his client or prospect. It is 
necessary to analyze and consider the information to determine 
the advisability of accepting credit risks. Many volumes have 
been written on the subject of analyzing financial statements. 
The discussion here will be limited to a statement of a few 
principles that should be followed. Those who are interested 



in learning more about analyzing financial statements are re- 
ferred to the many published texts on the subject.* 

Four indexes that may be used to determine the financial 
ability of a company are: 

1. The ratio of current assets to current liabilities. 

2. The ratio of inventories to net working capital. 

3. The ratio of fixed assets to total capital. 

4. The ratio of working capital to sales. 

These ratios as they pertain to an agency's client are extremely 
important, perhaps more so than they are to other creditors of 
the same company. This is because of the large commitment 
that the agency makes in behalf of its client. Before an agency 
can afford to accept the credit risk that is incurred by doing 
business with an advertiser, the agency must-have convincing, 
indisputable proof that the advertiser will be able to pay for 
the advertising campaign. A brief discussion of the principles 

1. The ratio of current assets to current liabilities. 

This ratio is probably the oldest one used by business- 
men to help them determine the financial strength of a 

For many years it was considered that if a company had 
a two to one ratio (current assets of double the amount 
of current liabilities) it was in healthy financial condi- 
tion. We have learned recently that, while a two to one or 
two and one-half to one current asset to current liability 
ratio may indicate financial strength, it is necessary to in- 
quire further into the facts to be sure that the tentative 
conclusion of financial strength is correct. 

Frequently, the ratio of current assets to current liabili- 
ties, if taken by itself, is misleading. During the war, com- 
panies with large earnings also were liable for the payment 

• One of the most recent of these is Analysis of Financial Statements by 
Kroll, published in 1948, by Funk & Wagnalls. 



of substantial taxes. These tax liabilities in themselves 
distorted the ratios of current assets to current liabilities. 
We have learned that even though current assets may 
equal two or three times the current liabilities, a company 
can still be pitifully weak financially. This is particularly 
true where inventories are large. Therefore, it is necessary 
to consider facts other than the ratio of current assets to 
current liabilities; the ratio of inventories to net working 
capital is of next importance for consideration. 

2. The ratio of inventories to net working capital. 

Inventories should never exceed one hundred percent 
of net working capital. Net working capital is the differ- 
ence between the current assets and the current liabilities. 
Inventories are included among current assets and where 
the inventories exceed one hundred percent of the net 
working capital (current assets less current liabilities) , 
the other current assets, which generally consist of cash 
and accounts receivable, will always amount to less than 
the current liabilities. When this is true, there will not be 
sufficient cash and accounts receivable to pay the current 
liabilities. It may be argued by some that inventories are 
valuable and that by liquidating inventories cash may 
be realized to pay a company’s debts. While this is true in 
the normal course of events, there are many times when 
it is not true. 

If inventories cannot be quickly liquidated, a company 
could be in an embarrassing financial position in the event 
that inventories exceeded one hundred percent of the net 
working capital, for then the accounts receivable and cash 
would not be sufficient to pay the company’s debts. 

3. The ratio of fixed assets to total capitals 

The ratio of fixed assets to total capital may become 
excessive through rapid plant expansion or through pur- 
chases of land or equipment. While there is no average 
figure that can be given (since the amount of capital in- 



vested in fixed assets varies with the kind of operation), it 
is an empirical truth that the amount invested in fixed 
assets should not be so large as to leave insufficient work- 
ing capital. Fixed assets cannot be used to pay debts. They 
only have substantial values to the going concern. 

If it becomes necessary to liquidate fixed assets to pay 
debts, the business is left without the necessary tools to 
operate. As a rule, a forced liquidation of fixed assets leads 
to bankruptcy. 

Some types of business require large investments in 
fixed assets. These are often financed by mortgages, long- 
term securities or public financing through stock issues. 

Companies requiring substantial capital investments 
include public utilities, transportation systems, hotels and 
apartment hotels, etc. Companies requiring a minimum 
capital investment for plant and equipment include serv- 
ice organizations, wholesalers, jobbers, manufacturers of 
pharmaceuticals, cosmetics and certain needle trades. 

Because of the wide variations in ratios between one 
kind of organization and another, there may be no com- 
mon ratio that could be applied to determine whether a 
company has invested too large a part of its funds in fixed 
assets. As a general guide, it can be stated that when more 
than twenty or thirty percent of the tangible net worth of 
a company is invested in fixed assets, further investigation 
should be made. 

4. The ratio of working capital to sales. 

To meet its obligations, a company must have sufficient 
cash at all times to pay obligations as they mature. When 
a company's sales expand there should be a corresponding 
increase in working capital. If this is not the case, the 
company may be unable to pay its obligations as they ma- 
ture. Different kinds of industries require different oper- 
ating ratios. A retail furniture store turns its inventory 
much more slowly than a department store and hence re- 



quires a larger ratio of working capital to sales. In by far 
the larger number of industries the working capital 
should be turned five or six times a year. This means that 
the average annual sales are five or six times the company’s 
working capital. 

In the advertising agency business itself, this ratio does 
not apply, the reason being that the advertising agency 
business is at least partially a profession or personal serv- 
ice business and because of those aspects, a smaller work- 
ing capital to sales ratio is required. Often advertising 
agencies turn their working capital ten to twenty times 
a year. In the average commercial business, the turnover 
usually is not greater than six or seven times a year. Where 
a company’s annual sales exceed six or eight times its 
working capital, it will be well to make a careful investiga- 
tion to determine whether or not the company is ade- 
quately financed. 

The principles outlined here are intended merely as guides 
to be used in establishing the financial responsibility of adver- 
tisers. Each individual problem should be studied in the light 
of the facts peculiar to that problem. The principles stated may 
then be used to test the conclusions that are made based on the 
particular facts surrounding each situation. 


national Outdoor Advertising Bureau 


JL HE National Outdoor Advertising Bureau, Inc., is operated 
by advertising agencies to provide the following services for 

1. Maintenance of statistics covering all markets in the 
United States and Canada in which posting service and 
painted display are offered. 

2 . Preparation of preliminary and final estimates for na- 
tional and regional campaigns. 

3. Preparation of contracts for both posting and painted 
display, with current knowledge of national, state and 
local laws affecting the use of outdoor advertising and its 
use for particular products. 

4. Negotiation with plant operators for space wanted and 
time schedules preferred by advertisers. 

5. Preparation of poster shipping orders and shipping labels 
for lithographers, after the agency has created designs, 
selected the lithographer and bought the paper. 

6. Transmitting detailed instructions to plant operators. In 
poster advertising campaigns, the instructions explain 
campaign objectives and give monthly directions for post- 
ing. In painted display, the Bureau issues copy reproduc- 
tions, blueprints scaled to fit the variations in space avail- 
able, color specifications and art reproductions. 

7. Payment to plant operators and billing the agency. Before 
payment the Bureau checks location lists and invoices 
with contract terms and adjusts for credits and discounts. 
The Bureau combines plant owners' invoices for all ac- 
counts and makes composite payment every fifteen days, 
eliminating multiple accounting records for agencies. 



8. Verification in the field of execution of members' con- 
tracts for posting and painted display. In a recent year the 
Bureau's field staff of sixteen men traveled 488,939 miles 
and inspected 248,803 poster panels, comprising 51,727 
poster showings. In addition, the field staff inspected 9,632 
painted displays. 

9. Offering of free consulting service to all media men and 
contact men of advertising agencies in the preliminary 
planning of outdoor advertising campaigns. 

Membership in the Bureau is open to any advertising agency 
by making application when it desires to place posting through 
the Bureau. 

The Bureau serves all agency departments concerned with 
planning, placing and servicing outdoor advertising by reduc- 
ing the cost and the burden of detail to the individual agency. 


Comprehensive Reference Index 


advertising, effect of size of, 

books of, 228-265 
executives, See Contact men 
Accountant, public, 103 
Accounting, 101-104, 151-155, 167- 
168, 173-179, 228-229 
cost. See Cost accounting 
punched-card, 266-273 
capital, 238 

control, See Control accounts 
general ledger, 237-240 
nominal, 238-240 
real, 237-238 

Accounts payable, 248, 272 
control accounts, 235, 249 
advertising materials, 212, 
213, 238, 249, 255, 256, 261 
expense, 238, 242, 258, 261 
outdoor, 186-187, 2 3&> 2 44> 
249, 261 

radio talent and production, 
177, 178, 244, 250, 261 
radio time, 167, 170, 177, 238, 
244, 249-250, 261 
space, 153, 155, 238, 261 
ledger, 151, 266 

Accounts receivable, 245, 247, 259 
control account, 153, 186, 237 
ledger, 103, 151, 247, 266 

Administrative expenses, See Ex- 
penses, general and admin- 

account, effect of size of, 65-66 
appropriations for, 37, 65-66, 
67, 82 

beginnings of, 6-7 
billing for, See Billing 
budget, See Budgets 
campaigns, 21, 30-33, 66 
planning, 23-25 
checking, 49-53, 59-60, 66, 132- 
135 . 157 

competitive studies of, 57 
contracts. See Contracts 
costs, 36, 37, 38, 67 
credit memos, 60-61, 138-139, 
140, 174 

estimates, 82, 125, 141, 143, 152 
evolution of, 8-10 
foreign, 119 
industrial, 65, 67 
insertion orders, See Orders 
magazine, See Magazine adver- 

material, 22, 37, 54-56, 66, 68, 
7*> 81 

accounting and, 188-221, 267, 

2 73 

accumulating job costs, 206- 
210, 215-216, 241, 251 



billing, See Billing 
bills from suppliers, 198-199 
cash discounts and, 76 
expense-billing authoriza- 
tions. See Authorizations 
production orders, See Or- 

production write-off authori- 
zations, See Authorizations 
purchase orders, See Orders 
transfer authorizations, See 
Job, transfers 

voucher register, See Voucher 

media, See Media 
newspaper. See Newspaper ad- 

omission of, 46-47, 60, 141-142, 
164, 167, 169 

outdoor, See Outdoor advertis- 

payments for, See Payments 
radio, See Radio advertising 
rates, 41-43, 45, 125, 127-129, 
131, 132, 144, 145, 146, 160, 

schedules, 82-83, 124, 125, 152 
space buying, See Space buying 
special, 34 
television, 34 

time buying, See Time, buying 
trade paper or magazine, See 
Trade papers and maga- 

Advertising agencies, 
collections by, 76-78 
compensation, basis of, 64-71 
credit and, 73-76, 287-288, 296, 
299, 301, 302, 304-319 
functions of, 21-24 
general, 65, 66 
house, 287, 303 
industrial, 65, 67, 68 


development of, 14-20 
foundations of, 7 
organization, departmental, 84 
research by, See Research 
responsibility of, 48, 59-60, 72, 

rise of, 7-14, 19-20 
services of, 21-24, 39, 53, 56-57, 
64, 66, 79 

specialists, 65, 67, 68 
terms and conditions, 69, 70-71, 
1S *5 

types of, 64-65 

volume of business, growth of, 

Advertising Checking Bureau, 

Advertising department, client’s, 

Agricultural Publishers Associa- 
tion, 43, 44, 288-290 
application form, 289, 291-296 
financial statement form, 289, 

members, 288-289 
principles of, 289 
rating system, 290 

of employees' time, 112, 264 
of indirect expenses, 90-93, 98, 
108, 116, 118-119, 223-224 
American Association of Adver- 
tising Agencies, 14, 43, 44, 
123, 277-285 

agency service standards adopt- 
ed by, 281-283 

qualifications for membership 
in, 277-281 

standards of practice, 283-285 
American Newspaper Publishers 
Association, 12, 43, 44, 288, 
290-291, 293-294, 296-297 


Amortization, leasehold, 236, 240 

engineering, 28 
financial statement, 323-327 
market, 27, 28-29 
media selection, 36, 66 
product, 27, 28 
Annual reports, 23 
Appropriations, advertising, 37, 
65-66, 67, 82 

Art director, 16-17, 19B 193, 223, 
224, 225 

Art work, 16-17, 37> 54-56, 65, 66, 
68, 72, 80, 188, 206, 212, 
213, 214 

accounting and, 222-227 
billing, 62-63, 199-200, 222, 224- 

cash discounts and, 76 
determining profit and loss, 
Assets, 237 

current, 237, 324-325 
fixed, 237, 260, 324, 325-326 
Associated Business Papers, Inc., 
43, 44, 288, 297, 299, 301 
Associations, publishers', See also 
under names of, 286-303 
Audit Bureau of Circulations, 46 
Auditing, as an expense, 118, 236, 
239> 257 


expense-billing, 200-202, 203- 
204, 206, 207, 208, 210, 212, 
213, 216, 218, 221, 241, 254, 

255. 256 

production write-off, 203-204, 
206, 207, 208, 210, 212, 213, 
216, 218, 221, 241, 254, 255, 

transfer, See also Job transfers, 

Auto expense, 236, 239 
Ayer's Directory of Newspapers 
and Periodicals , 37 

Balance sheet, 234, 235 
Batten, George, 10 
Billboards, See Outdoor advertis- 

Billing, 66, 75 

accounting entries and, 151-152, 

advertising materials, 23, 62-63, 
66, 68, 70, 75, 76, 189-191, 
198, 210, 213-218, 219, 220, 
221, 225, 267, 273 
advertising space, 23, 58 61, 62, 
72, 75, 130, 132, 135-144, 
1 57 _1 58, 181, 184-186 
art work, 62-63, 199-200, 222, 

checked space as checked, and 
unchecked space as or- 
dered, 136, 139-141 
credit risk reduction and, 75 
estimates, 84, 85 
file, 198, 202, 204-210, 216, 218, 
220, 226, 241, 252 
on prebill basis, 61-62, 136, 141- 
144, 269-270 

on space-ordered basis, 60-61, 
i3 6 -i39 

procedure, details of, 149-151 
radio talent and production, 
23, 62, 75, 171, 175-177 
radio time, 23, 58, 61-62, 75, 

schedules, 82-84, 85 
tabulating machines and, 266- 

Bonds, government, 258 
savings, 238 
Bonuses, 122 



Booklets, preparation of, 57 

instruction, 23 
recipe, 23 

Budgets, 79-98, 106, 228 
advertising, 37 
commission, 82-84 
comparison with actual figures, 
122, 234 
direct, 89-90 
indirect, 90-93 
gross profit and, 93-96 
master, 97-98 
media costs, 82-84 
quarterly review of, 97-98 

direct, 84, 86-89 
indirect, 90-93 
sales, 83 

Campaigns, See Advertising, cam- 
paigns; Publicity 
Capital accounts, 238 
Car cards, 34, 35, 53 

car, 34, 35, 53 

earnings record, 174, 243, 265 

disbursements, 146-149, 261 
discounts, 48, 59, 76, 126, 131, 
132, 144, 145, 162, 215, 259, 
269, 270, 272 

receipts journal, See Journals 
Catalogs, 34, 63 
planning, 23, 57 

Channels of distribution, 23, 32- 


Charges, deferred, 237 
Check register, 271 
Checks, 260 
file copies of, 242, 261 
for radio talent, 173, 178 


for radio time, 168 
payroll, 265 

preparation of, 146-149, 270- 
271, 273 

voucher, 147, 148, 270 
Circulation, statement of, 46 
“Client contact,” 24 

advertising department, 57 
invoices to. See Billing 
operating statements, individ- 
ual, See Statements, oper- 

Collections, 76-78 
Commission system, 3-4, 64, 66, 67, 
70, 103, 105, 119, 126, 131, 

132, 144, 159, 162, 171, 176, 
218, 223, 269, 286-287 

beginning of, 10, 13-14 
budgets and, 82-84 
Compensation, See also Salaries, 
agency, basis of, 64-71 
films, 23 
panels, 29-30 
surveys, 29 

Contact men, 35-36, 68, mo, 191, 
193, 220 
Contests, 23 

Contracts, See also under names 
of media, 

advertising, 41-48, 72, 125-129, 

133, 156, 160-162, 181-184, 
186, 244 

standard, 43-47 

allocation of indirect expenses 
and, 92 

open contract plan, 10-1 1 
Contributions, 236, 239 
Control accounts, 
accounts payable, 235, 249 
advertising materials, 212, 
213, 238, 249, 255. 256, 261 


expense, 238, 242, 258, 261 
outdoor, 186-187, 238, 244, 
249, 261 

radio talent and production, 
177, 178, 244, 250, 261 
radio time, 167, 170, 177, 
238, 244, 249-250, 261 
space, 153, 155, 238, 261 
accounts receivable, 153, 186, 

unbilled advertising materials, 
190, 220, 237, 248, 249, 251, 

2 53> 255 
Copy, 65, 284 

preparation of, 15-16, 21, 24,66, 

testing, 21, 57 
Copywriters, 12, 15-16, 110 
radio, 161 
Cost accounting, 

statements, 80, 81-82, 93, 94, 
106, 108-109, 1 19-123 
system, 80, 81, 82, 86, 89, 105- 
123, 227, 229 

Cost of billings account, 238 
Cost of sales, 246, 248 
Costs, See also Expenses, 79-82 
advertising, 36, 37, 38, 67 
art studio, 222 
direct. See Expenses, direct 
indirect, See Expenses, indirect 
job, accumulating, 206-210, 215- 
216, 241, 251 
recording, 208-210 
measuring, 229 
media, forecasting, 82-84 
research, 30-31, 67-68 
sales, 108 
Credit, 72-76 
guideposts, 74 
insurance, 75-76, 304-319 
memos, 60-61, 138-139, 140, 174 
radio talent and, 174 

radio time and, 168-169, 170 
ratings, 74 
risks, 73, 323 
how to reduce, 75-76 

displays, 34 
helps, 22, 63 
surveys, 29 

savings bond, 238 
tax, See Taxes 
Deferred charges, 237 
Depreciation, 236, 240, 260 
reserve for, 237 
label, 22 
package, 22 
product, 23 

Direct expenses, See Expenses 
Direct mail, 23, 34, 63 
Directory of Newspapers and 
Periodicals (Ayer’s), 37 
Disbursements, cash, 146-149, 261 
allowed, 240 

cash, 48, 59, 76, 126, 131, 132, 
> 44 - > 45 . > 6: >. 2 > 5 . 259. 269, 
270, 272 
earned, 240 
Display signs, 34 
Displays, See also Exhibits, 22 
dealer, 34 

outdoor, See Outdoor advertis- 


advertising campaigns and, 32- 

channels, 23, 32-33 
Dividends received, 240 
Dues, 81, 118, 123, 236, 237, 240, 



Dun 8c Bradstreet, 74, 304, 306 
reports, 320-323 

Earnings record cards, 174, 243, 


earnings records, 174, 243, 265 
time estimates, 86-89, 109-110 
time reports, See Reports 
Engineering analysis, 28 
Entertainment expenses, See Ex- 

Estimates, See also Budgets, 
advertising, 82, 125, 143 
approved, 125, 141, 152 
billing, 84, 85 

employee’s time, 86-89, 109-110 
Exhibits, See also Displays, 23, 57 
Expense-billing authorizations, 
See Authorizations 
Expense voucher register, See 
Voucher register, expense 
Expenses, See also Costs, 105 
billing authorizations, See Au- 

direct, 80-81, 96, 108, 109, 121, 

234. 238-239. 242, 257. 258 

forecasting, 89-90 
schedule, 97, 114, 116, 117 
entertainment, 81, 89, 236, 239, 

257. 258 

general and administrative, 
108-109, 118, 120, 234, 236, 

2 39> 2 4 2 > 257 
schedule, 232, 234 
indirect, 80-81, 94, 98, 121, 123, 

allocation of, 90-93, 98, 108, 
116, 1 18-119, 223-224 
forecasting, 90-93 
salaries, See Salaries 
schedule for, 93, 94, 95 

miscellaneous, 236, 240, 242, 

new business, 240, 242, 257, 258- 
259, 264-265 
operating, 81 
organization, 237 
overhead, 90, 94, 95, 116, 118, 
223, 225 
prepaid, 237 
promotional, 240 
research, See also Research, 2 57 
traveling, 80, 81, 89, 200, 236, 
2 39 > * 57 - 2 5 8 

voucher register for. See 
Voucher register, expense 
Express charges, 200, 218, 236, 239 

Farm papers, 72, 288-289 
Federal Food, Drug and Cosmetic 
Act, 1$ 

Fees, service, 67, 70-71, 105, 108, 
120, 121, 122 
master budget and, 96 

billing, 198, 202, 204-210, 216, 
218, 220, 226, 241, 252 
insertion order, 243 
outdoor contract, 244 
paying, 198, 202, 204, 207-209, 
211-213, 220, 226, 241, 252 
radio time invoice, 243 
storage, 216 
Films, 34, 57 
consumer, 23 
sales, 23 

Financial statements, See State- 

Fixed assets, See Assets 
Forecasts, See Budgets 
Forty Years an Advertising Agent, 

Furniture and fixtures, 237, 258 


General and administrative ex- 
penses, See Expenses 
General ledger. See Ledgers 
Gifts, as an expense, 257 
Good-will, 237 

Gross profit, 93-96, 108-109, 118, 
120, 121 

Guarantees, credit risk and, 75 

House agencies, 287, 303 
House organs, planning, 23, 57, 
6 3 

Illustrations, 16-17 
Incentive systems, 122 
Indirect expenses, See Expenses 
Individual client operating state- 
ments, See Statements, op- 

Industrial advertising, 65, 67 
agencies for, 65, 67, 68 

contracts and, 126 
orders, 47-48, 129-142, 144-146, 
148-151, 153, 155, 249, 268- 

bookkeeping copy, 132, 133, 
i45> 157 
files for, 243 

indirect expenses allocation 
and, 91-92, 119 
magazine, 156-158 
proof of, 41, 46 
Instruction books, 23 
Insurance, 237 
as expense, 118, 236, 240 
credit, 75-76, 304-319 
Intangibles, 237 
earned, 240 
paid, 240 

Internal control. 103, 124, 178, 
187, 245 

personal, 29 
telephone, 29 
Inventory control, 208 
journal, See Journals 
of supplies, 237 
Investments, 237 
Invoices, See Billing 

Job costs, See Costs 
Job transfers, 204-206, 208, 210, 
216, 218, 221, 241 

cash disbursement, 261 
cash receipts, 242, 247, 259 
general, 242, 260 
inventory control, 179, 208-209, 
210, 212, 217, 220, 241, 250- 
254 > 255 

recap sheet, 250-251, 253, 261 
sales and cost, 108, 109, 153-154, 
167, 170, 177, 186, 208, 240, 
244-250, 251, 252-253, 266, 

recap sheet, 246, 251 
standard, 242, 259-260, 265 

Kennedy, John E., 16 

Labels, design of, 22 
Lasker, Albert D., 16 
Lay-outs, 37, 55, 199, 222-223 
in 19th century, 16 
Leasehold amortization, 236, 240 
Leasehold improvements (un- 
amortized), 237 

accounts payable, 151, 266 
accounts receivable, 103, 151, 
247, 266 



general, 170, 186, 187, 212, 220, 
234-240, 245, 247-249, 251, 
253. *54, 255, 256, 258, 259, 
260, 262, 264 

typical accounts in, 237-240 
Legal expenses, 118, 239, 257 
Liabilities, 237-238 
current, 237-238, 324-325 
long-term, 238 

Light expense, 81, 118, 222, 236, 
*39> 257 

Linage reports, 272 

Machines, tabulating, 266-273 
Magazine advertising, 34, 36, 37, 

billing, 58-59, 75, 157-158, 267, 


checking, 51-52, 157 
contracts, 41-48, 156 
insertion orders, 156-158 
payments to publications, 158, 
267, 272 

position rating, 51-52 
rates, 41-42 

Manuals, sales, 22, 57, 67 
Market analysis, 27, 28-29 
Mechanical transfers, See Job 

Media, advertising, 
costs, forecasting, 82-84 
recommendations, 37, 40, 124, 
125, 152, 269 
selection of, 34-39, 66, 80 
types of, 34 
Meetings, sales, 23 
Miscellaneous expenses. See Ex- 

National Outdoor Advertising 
Bureau, 35, 53, 180-181, 


Net profit, 105, 109, 118, 120, 121 


New business expenses, See Ex- 

Newspaper advertising, 34, 35-36, 

accounting and, 152-155, 267 
punched-card procedure, 

267- 272 

billing, 59-61, 72, 75, 96, 130, 
‘32, i35 '44> ‘5‘-‘52, 267, 

checking, 49-51, 59-60, 66, 132- 

contracts, 41-48, 125-129, 133, 
268, 270 

credit memos, 60-61, 138-139, 

estimates. See Estimates 
in early 19th century, 6-7 
insertion orders, See Orders 
payments to publications, 144- 
149, 267, 269, 270 
position reports, 50-51, 272 
rates, 41-43, 125, 127-129, 131, 
132, 144, 145, 146, 269 
schedules, See Schedules 
“Newspaper sales'’ account, 153 
Notes payable, 237 
Notes receivable, 237 

Office equipment, 237, 258 
Open contract plan, 10-14 
Operating expenses, 81 
Operating statements, See State- 

insertion, 47-48, 129-142, 144- 
146, 148-151, 153, 155, 249, 

268- 270 

bookkeeping copy, 132, 133, 

files for, 243 


indirect expenses allocation 
and, 91-92, 1 19 
magazine, 156-158 
production, 55-56, 191-196, 206, 

radio, 172-173, 174, 176, 177, 
244, 250 

purchase, 195-198, 220 
allocation of indirect ex- 
penses and, 92, 119 
Organization expense, 237 
Outdoor advertising, 34, 35, 53, 
75, 180 

accounting, 180-186 
billing, 62, 75, 181, 184-186 
contracts, 43, 72, 181-184, 186, 

files for, 244 

payments to outdoor plants, 

Overhead expenses, 90, 94, 95, 
1 16, 118, 223, 225 

“Package shows,” 38, 159, 160 
Packages, design of, 22 
Palmer, Volney B., 7 
Panels, consumer, 29-30 
Parcel post charges, 200 
Patent medicines, 8, 18 
Paying file, 198, 202, 204, 207-209, 
211-213, 220, 226, 241, 252 

to magazines, 158, 267, 272 
to newspapers, 144-349, 267, 
269, 270 

to outdoor plants, 186 
to radio stations, 166-168, 170, 

to radio suppliers and talent, 


preparation, 267 
records, 265 
summary, 243, 261-265 
Pension and profit-sharing fund, 

Periodical Publishers Association 
of America, 43, 44, 288, 
members, 301 
Personal interviews, 29 
Petty cash fund, 237 
Portfolios, sales, 22 
Postage, 200, 218, 236, 239 
Poster contracts, 181-184 
Prebill, 61, 136, 141-144, 269-270 
Premiums, 23 
Prepaid expenses, 237 
Printers 1 Ink, 123 

analysis, 27, 28 
design, 23 

new, development of, 23 
manager, 191, 193, 195 
materials, See Advertising, ma- 

orders, 55-56, 191-196, 206, 219 
radio, 172-173, 174, 176, 177, 
244, 250 

write-off authorizations, See 


gross, 93-96, 108-109, 118, 120, 

net, 105, 109, 118, 120, 121 
Profit-and-loss statement, 109 

expenses, See Expenses 
retail, 22 

Public accountant, 103 
Public relations, 23 
Publicity, 22, 56, 66, 80 



Punched-card accounting, 266- 


Purchase orders, 195-198, 220 
allocation of indirect expenses 
and, 92, 119 
Purchase register, 190 

Questionnaires, 29-30, 31 
Quoin Club, 301 

Radio advertising, 22, 34, 35, 36, 
65, 76, 159 

accounting and, 167-170, 173- 
179, 267 

billing, 23, 58, 61-62, 75, 162- 

169, 171, 175-177 
checking, 52-53 
commissions, 159-160, 171 
contracts, 43, 72, 160-162 
copywriters, 161 

credit memos, 168-169, 170, 174 
omissions, 164, 167, 169 
‘‘package shows,” 38, 159, 160 
payments to stations, 166-168, 

170, 267 

payments to suppliers and tal- 
ent, 177-178 

production orders, 172-173, 174, 
176, 177, 250 
files for, 244 
program selection, 38 
rates, 41, 160, 162 
scriptwriters, 161 
scripts, 161, 171 
sponsored programs, 38-39 
spot announcements, 38, 43, 53, 

talent and, 38, 62, 72, 75, 76, 
159, 160, 171179 
talent vouchers, 173, 174, 175, 

time buying, 22, 40 


Rates, advertising, 41-43, 45, 125, 
127-129, 131, 132, 144, 145, 
146, 160, 162, 269 
“sliding scale,” 42, 127 , 128 
Recipe books, 23 
Recipes, testing, 57 

accounting, 228-229 
earnings, 174, 243, 265 
payroll, 265 
time, 109-114 
art, 223-224 

Rent, 81, 96, 118, 123, 222, 223, 
*3 6 > 239, 257 
Repairs, 236, 240 
annual, 23 

cost-accounting, See statements, 
Dun & Bradstreet, 320-323 
government, 267 
linage, 272 

position, newspaper, 50-51, 272 
tardy work, 193-194 
time, 108, 109-114, 263-265, 267 
Research, 17-18, 22, 26-33, 66, 80, 

as expense, 257 
by agencies, 26-27 
by outside organizations, 27 
compensation for, 67-68 
cost of, 30-31, 67-68 

depreciation, 237 
for federal taxes on income, 238 
Retail promotion, 22 
Rowell, George P., 7, 7fn. 

Salaries, 105 
artist’s, 222, 225, 239 
direct, 80, 94, 96, 108, 109, 234, 
238-239, 261-265 
forecasting, 84, 86-89 


schedules, 96-97, 98, 114, 115, 

233» 234 

indirect, 81, 94, 98, 116, 234, 
239, 261-265 
forecasting, 90-93 
schedule for, 93, 94 
summary of paid, 243, 261- 

Sales, 108, 247 
budget, 83 
costs of, 108 
films, 23 
helps, 22 

manuals, 22, 57, 67 
meetings, 23 
policies, planning, 23 
portfolios, 22 
tax, 218 
training, 23 

Sales and cost journal, See Jour- 

Salesmen, in field, working with, 

Savings bond deductions, 238 

advertising, 82-83, 124, 125, 152, 

approved, 125, 269 
billing, 82-84, 85 
direct expense, 97, 114, 116, 
H 7 

direct salary, 96-97, 98, 114, 175, 

233> 234 

general and administrative ex- 
pense, 232, 234 
indirect expense, 93, 94, 95 
indirect salary, 93, 94 
master budget and, 96 
Scripts, radio, 161, 171 
Scriptwriters, 161 
Securities, 237, 258 


advertising agency, See Adver- 
tising agencies 
fees for, See Fees 
Signs, display, 34 
Sky-writing, 34 

Sliding-scale rates, 42, 127, 128 
Social security taxes, 173, 174, 177, 
178, 236, 238, 240, 260 
Southern Newspaper Publishers 
Association, 288, 302-303 
Space buyer, 14-15, 35, 40 
Space buying, 22, 40-48, 66, 80 
in 19th century, 7-8 
Space insertion orders, See Orders 
Space representatives, 41 
Standard Hate & Data , 37, 40 
Statements, 102 
circulation, 46 

cost-accounting, 80, 81-82, 93, 
94, 106, 108-109, 119-123, 
229, 267 

financial, analyzing, 323-327 
operating, 79, 109, 229, 230-231, 

individual client, 107, 108, 
109, 114, 118, 120, 258 
profit-and-loss, 109 
Stationery, 81, 118, 200, 222, 236, 

Storage files, 216 

Subscriptions, 81, 118, 123, 236, 
237, 240, 257 

Supplies, 81, 123, 222, 223, 236, 

inventory of, 237 

consumer, 29 
dealer, 29 

Tabulating machines, 266-273 
Talent, radio, 38, 62, 72, 75, 76, 
159, 160, 171-179 



Talent vouchers, radio, 173, 174, 
175, 176 

Tardy work reports, 193-194 

deductions, 173, 174, 177, 178, 
236, 238, 240, 265 
miscellaneous, 236, 238, 240 
reserve for, 238 
sales, 218 

Telegraph charges, 200, 236, 239 
Telephone expenses, 

local, 81,1 18, 222, 223, 236, 239, 


long distance, 200 
Telephone interviews, 29 
Television, 34 

Terms and conditions, of advertis- 
ing agencies, 69, 70-71, 125 
copy, 21,57 
recipes, 57 

buying, 22, 40 

estimates, employee’s, 86-89, 
109-1 10 

records, 109-114 
art, 223-224 

reports, 108, 109-114, 263-265, 

Trade papers and magazines, ad- 
vertising in, 34, 72 

billing, 58-59, 157-158, 267, 272 
checking, 51-52 
costs, 67 

Traffic department, 193-194, 219 
Training, sales, 23 
Transfer authorizations, See also 
Job transfers, 204 
Traveling expenses. See Expenses 

Unbilled advertising materials ac- 
count, See Control ac- 

U. S. Commerce Department, 27 

Visualization, 24 

check, 147, 148, 270 
radio talent, 173, 174, 175, 176 
register, 116' 179, 208, 210-213, 
220, 221, 226, 241, 248, 250, 
25'. 252, 253, 254-256, 261 
expense, 108, 116, 242, 256- 
259, 261, 267 

Withheld taxes, 173, 174, 178, 265 
Work sheet, 

indirect expense, 93 
radio billing, 162-164 
Write-off authorizations, See Au- 

34 * 

. Fees . . . Cash 
scounts . . . Profit 
d Loss . . . Credit and 
edit Guideposts . . . Distri- 
tion Channels . . . Costs . . . 
osing Dates . . . Frequency of In- 
rtion . . . Position . . . Color . . . Credit 
surance . . . Contracts . . . Volume . . . 
ites . . . History and Growth . . . Selling Price 
. Size of Account . . . Agency Terms . . . Traffic 
jpartment . . . Recognition Process . . . Systematic 
ethods . . . Lay-out . . . Markets . . . Testing . . . Checking 
. Surveys . . . Product Analysis . . . Engineering Analysis . . . 
oduct Design . . . Packaging . . . New Product Development 
les Policies . . . Visualization . . . Sales Training . . . Integration . . . 
stail Promotion . . . Production . . . Professional Service . . . Estimates 
, Public Relations . . . Personal Interviews . . . Consumer Panels . . . 
lestionnaires . . . Publicity . . . Analyzing Financial Statements . . . 
witact Men . . . Art Directors . . . Copywriters . . . Space Buyers 
. Clients . . . Sponsors . . . Consumers . . . Jobbers . . . Space Reps 
. Station Reps . . . Suppliers . . . Accountants . . . Media Recom- 
mendations . . . Magazines . . . Newspapers . . . Radio . . . Tele- 
vision . . , Business Papers . . . Farm Papers . . . Car Cards . . . 

Billboards . . . Collections . . . Forecasts . . . Budgets 
. . . Salary Costs . . . Direct and Indirect Expenses . . . 

Inventory . . . Invoices . . . Work Sheets . . . Time 
Records . . . Purchase Orders . . . Insertion 
Orders . . . Commissions . . . Fees . . . Cash 
Discounts . . . Profit and Loss . . . Credit 
and Credit Guideposts . . . Distri- 
bution Channels . . . Costs . . . 
g Dates . . . Frequency 
■n Insertion . . . Position 

1^ . . . Color . . . Credit 

Insurance . . . 

Liability . 

Dun & Bradstn 
Reports . . . Cat 
paigns . . . Advertisii 
Materials . . .Contests . 

Dealer Helps . . . Sales Hel 
. . . Filins . . . Direct Mail . . . Exhib 
. . . Premiums . . . Instruction and Reci 
Books . . . Catalogs . . . House Organs . 

Sales Meetings . . . Annual Reports . . . S 
Writing . . . Theater Programs . . . Directories . 

Spot Announcements . . . Booklets . . . Cancellati 
Dates . . . Chain Breaks . . . Illustrations . . . Factual D; 

. . . Competition . . . General Operating Statement . . . Sa 
and Cost Journal . . . Inventory Control Journal . . . Supplie 
Bills, Billing File . . . Suppliers’ Bills, Paying File . . . Voucher Regisi 
. . . Expense Voucher Register . . . Cash Receipts Journal . . . Standa 
Journal . . . General Journal . . . File Copies of Checks Issued . 
Payroll Summary and Employees Earnings Records . . . Space Ins 
tion Order Files . . . Radio Time Invoices File . . . Radio Producti 
Order Files . . . Outdoor Contract Files . . . Current Assets . . . Inve 
ments . . . Prepaid Expenses and Deferred Charges . . . Fixed Ass 
. . . Intangibles . . . Current Liabilities . . . Long Term Liabilities 
... Net Worth . . . Billings . . . Cost of Billings . . . Direct Ex- 
penses . . . General and Administration Expenses . . . Other 
.Income . . . Other Expenses . . . Liability . . . Dun & 

Bradstreet Reports . . . Campaigns . . . Advertising 
Materials . . . Contests . . . Dealer Helps . . . 

Sales Helps . . . Films . . . Direct Mail . . . 

Exhibits . . . Premiums . . . Instmetion 
and Recipe Books . . . Catalogs . 

House Organs . . . Sales Meetings 
„ . Annual Reports . . . Sky 
. . Theater Pro- 
, gram^l|y?irectories